Cozart Share Discussion Threads

[wengerb] 04/9/2006 17:51

Etarip: no, I don't think that CZT should be looking to change its PR company. CZT employs Financial Dynamics, a company with an excellent reputation. Whilst I'm on the subject of advisors, CZT's broker/financial advisor, Numis, also has a very good reputation, especially in the Health Science sector.

But your specific question raises a more general point. I assume that most of we few who read this BB are optimistic about CZT's prospects but feel always slightly starved of insight into what's going on in the company. We've invested in CZT and would love to know whether we're going to see a return in the short, medium or long-term. Me, I'm in for the long ride. I don't believe that the really significant potential will begin to appear until late-2007, with news of the Phillips joint development.

Why doesn't the company keep us better informed? Why doesn't the company seem to be more actively massaging its share price? I have a friend who's an FD in a company rather similar to CZT and he once said to me "If this was a private company in which we'd all invested, we wouldn't worry so much. We know what we want the company to achieve. We know the company's competitive advantages. We should all relax and let the company get on with things. The problem is that if you're a small, developing company we all, especially the outside investors, think that the share price is a predictor of whether or not we'll succeed. But it isn't. We all know that but we can't stop worrying that it might be."

For obvious reasons, a company has to walk the tightrope of keeping its owners, the shareholders, informed of progress (or lack of it) whilst not spilling the beans to the company's competitors. CZT tells us (something of) what's going on twice a year and is under an obligation to tell us more if, between those reports, the company's fortunes take a turn for the worse or better.

Forgive me if I seem to be telling everybody what is perfectly obvious but the point I'm trying to get to is that many companies, and I suspect that CZT is one of them, do not give a very high priority to its short-term share price. As a company manager, you don't want to greatly upset your shareholders but you hope that the shareholders realise that the directors' main responsibility is to maximise the ultimate value of the shares, not to waste time or money trying to move the share price from 34p to 40p when there's not a lot to shout about.

Nearly 50% of the CZT shares are held by two key directors of CZT (the brothers Hand) and by a non-exec. director. The non-exec has continued to invest large sums in CZT. These people have a hugely better informed view of CZT's prospects that we'll ever have. We outsiders have the option of trusting these people or of getting out of our investment. As I mentioned yesterday, why would the key directors of a company raise the issue of possible sales developments in Germany and the US if they didn't have a reasonable faith that such developments will occur? I'm not being sarcastic when I say that when writing up the prelims, directors don't (I hope) say "This report looks a bit thin. What can we stick in to bulk it up a bit? I know, Germany and the US are big markets, let's hint that we might be doing a bit of business with them? After all, if we never get anywhere in Germany and the US, nobody will ever remember that we floated the idea."

CZT places huge store on the Phillips project. I don't know whether Phillips approached CZT or vice versa but I do know that one of the world's most successful players in the medical equipment market is very actively engaged with a small company outside Didcot. The directors of CZT know how frequent are the visits to Eindhoven. They know how much resource Phillips is putting into the project. The bosses at CZT must have a feeling for how well the joint development will play out. When it was first announced, in January of this year, the initial development time was set at 18-months. That's a pretty rapid development project and almost half the time has already elapsed. I'm not suggesting for a moment that I have a good reason to believe that the Phillips joint development has a high likelihood of succeeding. Joint developments often fail. What we do know is that the main shareholders in Cozart (who just happen to run the company) do seem to be optimistic about the outcome.

One might ask the question; if the project's going so well now, why wouldn't Phillips simply buy CZT tomorrow? I once asked a similar question of the strategic boss of a drug development company. He explained that great big companies are often happier to leave the risk and reward to smaller partners. Smaller partners are more energetic and nimble at driving development projects. If the big company ends up paying much more to acquire the smaller company, it's still a better bet for the larger.

[cfb2] 04/9/2006 12:55

etarip: I agree it's confusing.

Clear Capital is not a broker it is an independant analyst company that provides research on poorly covered stocks. Clear Capital stakes its reputation on the quality of the analyst reports that it produces. In the case of Cozart I believe Clear Capital did an excellent job which was superious to Numis' research.

Numis is both a broker and market maker and has a research division that produces analyst reports for its clients. Whilst there is a penalty enforced thick dividing line between the research and marketing sides to Numis, there will always remain the question of impartiality of its recommendations.

CFB

[etarip] 04/9/2006 12:27

CFB, I was taking my information from WengerB's recent post 585 of 591
"Two brokers cover Cozart, the company's house broker, Numis, and another small outfit, Clear Station". I must have misinterpreted this statement. Thank you for correcting me.

[cfb2] 04/9/2006 12:03

etarip: Two market makers? I think you mean four, which is pretty standard for a low volume share. The MMs are Numis Securities, Piper Jaffray, Evolution Beeson Gregory and Winterflood Securities.

Each seems to trade with a 3p differential, sometimes 4p. Unless there is disparity amongst them, as we saw results time when the spread was just 1p, a 10% (3p) spread for a trader is too harsh.

CFB

[etarip] 04/9/2006 11:17

WengerB, you say that the company pursues a pretty active public relations campaign. That may be so but can it be described as being successful? Do you think the Company should be looking for new PR consultants?

Another, area that needs attention in my opinion is the fact that there are only two market makers. Small companies do not have to be ignored and lack liquidity but it does not come without hard work even if a company is making profits.

[keyno] 04/9/2006 09:53

I was rather disappointed too re lack of coverage but when you remember that the "weekend" papers are mostly written well before the weekend these days - hence the lack of real news in them - I suspect this would not give enough time to feature a small co. that only reported results on Thursday. I have noticed this before with small companies.

[leopold555] 04/9/2006 09:33

Hello, are all the write ups by the same journalist?

[wengerb] 04/9/2006 09:30

etarip. I, too, find it very frustrating how little coverage Cozart gets. Last week The Times managed to report CZT's small profit as a £300,000 loss. I find it particularly irritating that even the FT completely ignored CZT's results. The FT's omission seems especially odd given that only a few months ago that paper gave CZT a very large write up as a company to watch. I don't think that the problem lies with CZT. The company seems to pursue a pretty active public relations campaign.

The problem seems to be that CZT is still a tiddler and there are thousands of such companies, especially AiM listed ones, and such tiddlers struggle to get much coverage from analysts.

[etarip] 04/9/2006 09:06

Thank you WengerB and CFB2 for your interesting comments. It is a shame that there appeared to be no press comment over the weak-end on the good results. I am in this one for the long term and of course the share price now does not matter. However, it always helps a company to have a reasonably elevated profile.

[cfb2] 04/9/2006 01:53

dinky rinky: WengerB, myself and others have wasted considerable effort on this thread arguing with morons who haven't grasped the basic fundamentals of investing let alone valuing companies. If you read back through the thread you'll quickly gather why WengerB is easily exasperated. That aside, your point was valid, but of secondary considerations for reasons that I'll explain...

According to the Clear Capital note the average PER in this sector is 25, with Orasure (I believe a suitable comparison in terms of maturity) having a PER of 54.

It may be the case that the Philips joint work is suitable for R&D tax credits. There are a number of outstanding liabilities from acquisitions and these weren't part of the calculation.

Nobody has commented on this statement in "International operations":
In addition, we believe that there is significant potential for the development of new market opportunities over time, for example through roadside drug testing and programmes similar to the UK DIP in other countries.

Which country has a similar setup to the UK in terms of DIP? Sweden. Hardly surprising then that Cozart recently bought HL Scandinavia which supplied products to the criminal justice in Sweden.

Which brings me onto my third point, profits from HL Scandinavia weren't factored into the above turnover (previously they had a turnover of 1m).

One thing that surprised me in the accounts was the unexpectedly high cost of goods. It was noted in the accounts that a large number of low margin items were sold by Spinreact in the last half year as the reason. There was this comment in "Acquisition of Spinreact":

The international market for laboratory equipment and consumables remains extremely competitive and there is constant pressure on margins. Accordingly, we are pursuing a number of initiatives in order to improve the product mix, reduce costs and focus on higher margin products.

So in summary, to me it looks like the predicted PER is in the right ball park (whether it's 15 or 25 or even 35) but it's difficult to be accurate. Of more concern to me is whether Cozart can leverage their position in places like the DIP and maintain their margins. Can they make inroads in the US market? Can they make inroads in the roadside testing market? There was this tempting statement in the accounts:
In France we believe that the key near-term opportunity may be in the
establishment of roadside drug testing. Therefore, in March 2006 we appointed
Elitech SA in France to act as the distributor of Cozart products for France.

Lots of possibilities.

CFB

[dinky rinky] 03/9/2006 20:19

Caught you at a bad moment !!

Well then continue to delude yourself with erroneous projections.

LOL, where do these hissy fit characters come from ?

[wengerb] 03/9/2006 17:23

Dinky rinky. For a £2m PBT, the net tax position would be £1.4. Anyway, CZT has accumulated losses that would remove the company's CT liability. Get back to me when you've anything less pedantic and more original to contribute? You caught me at a bad moment.

[dinky rinky] 03/9/2006 16:58

WengerB

Good analysis but your calculation on prospective PER is not correct as you have used PBT rather than net earnings.

For £2m PBT, I would suspect net earning would be in the order of £1.2m, which would give a prospective PER of 26/27 rather than the 16/17

Still a good bet.

[wengerb] 03/9/2006 11:58

My pleasure. It's fascinating to be able slightly to unpick some strands from a few figures. Some months ago I had a long meeting with two of Cozart's senior managers. They behaved completely correctly in terms of what they could discuss and what had to remain secret but I got a distinct sense that they were pleased with the company's trading progress. I also got a distinct sense that the Phillips joint development was important not only to Cozart but to Phillips. Phillips has subsequently stated a strategic move towards medical equipment and would not be investing heavily in the joint venture unless it held the possibility of substantial revenues.

[gombie] 03/9/2006 11:43

WengerB
Thank you for that logical and interesting analysis of the figures.It's exciting stuff.Cozart will, I'm sure, prove to be an excellent investment.

[jimmyloser] 03/9/2006 11:31

WengerB,

Congratulations on one of the best posts that I have read for many a long day, if only all posts were as well researched as yours.

Appreciated

JL

[wengerb] 03/9/2006 10:59

I've applied some simple arithmetic to Cozart's latest figures. I hope that you find them encouraging? I do.

We know the figures for the six-months ending 30th November and for the year ending 31st May. Obviously, if you subtract the former from the latter you get the picture for the six-months to 31st May. It's pretty good.

Cozart's isn't a seasonal business so if you multiply the second half figures by two, you get what should be the very minimum picture for the current financial year (ending 31st May 2007).

I added in a 10% growth figure for each of the two halves of the current financial year.

Two brokers cover Cozart, the company's house broker, Numis, and another small outfit, Clear Station.

I looked at what they both forecast for y/e May 2006 and y/e May 2007. Here are all those figures: the two figures (turnover and PBT) for the 1st half of 2006 were £3.811m and (0.2m), The full year figures were £11.1m and £0.3m. Therefore the second half figures were £7.3m and £0.5m. Double those are £14.6m and £1m. Add to tranches of 10% growth and you get to £16.8m and £1.2m. For F2006 and F2007, Numis forecast £10.3m and £0.3m (bang on) and £14.1m and £1.7m. The comparable figures from Clear Station were £10.1m/£0.2m and £14.4m/£1.4m

I've made no assumptions about the change in margins for F2007 but Numis sees a margin improvement in the 2007 business mix. If you apply the Numis margin to my minimal growth forecast of turnover, you get a PBT for F2007 of just over £2m. At the current share price, that's a prospective p/e of 16/17, not so high for a rapidly growing company.

I've another point about F2007. We should see two major qualitative changes for Cozart in this financial year. One should be news of market developments in the US and/or Germany. Why do I say this? Because Cozart has flagged up the markets as key targets and it would be pretty stupid of the company to have done so unless it was pretty confident of imminent news in those markets. The other should be the success of the Cozart/Phillips joint-development.

Any day now, Numis and Clear Station should issue research notes on Cozart recommending a "buy". They should point to significant profits growth for a company on only a moderate p/e, and the likelihood of good news flow.

[rumblinged] 01/9/2006 12:21

It's always nice to see an FD who is careful with his cash. It'll be interesting to see if he buys more.
Ed

[etarip] 01/9/2006 11:26

On 31 August 2006, Cozart plc ('Cozart' or the 'Company') was advised that Chris
Yates, Finance Director of the Company, acquired 20,000 existing Ordinary Shares
at 34p per share on 31 August 2006.

Shows confidence.

[jimmyloser] 31/8/2006 18:14

I am delighted with the results, I followed the lead of Medisys when they made Cozart their first purchase (1.2million shares at 28p), I figured that their is no way that Mdy could make an error,especially being new to the medical investment arena, my thoughts have since been confirmed by Charles Spilling who is now the new CEO of MDY, he was previously head of healthcare at Numis and knows and also rates this company very highly......................so do I.

Worth holding.

[leopold555] 31/8/2006 13:28

Agree broadwood and what I liked in addition was that not only has the integration gone well and started to bring in revenue but that there is organic growth as well. This market is ideal for growth as it is simple to duplicate with extremely little cost :-)

I shall be adding
Leo

[broadwood] 31/8/2006 11:38

Well having looked at the slides its all exciting stuff.

The priorities for the coming year seem to be to crack the Markets in Germany and the U.S.

The development with Phillips is to make a drug testing kit as easy to use as the breathalyzer.

There is certainly an ever expanding market.

[cfb2] 31/8/2006 10:40

Anyone got the webcast to work? I can see the slides, but can't hear the audio (or rather I hear about 1 second of the audio per slide).



CFB

[leopold555] 31/8/2006 08:13

It will be interesting to hear what the analysts say after their 'tour'