chart hildo, page-9

It is fair to say that today's market behaviour is challenging everyone. However, SLX has now breached my mooted $6.60 line of last week (6/8) and was trading @$6.36 a short time ago.

In the overall scheme of things, this would not be considered significant except that in the intervening period, the Company has come out with a supportive busisness statement. So, despite the merit of that statement, SLX's share price remains under downward pressure.

In my view, this clearly demonstrates the risk re-weighting that is now going on in the market. Look at MBL (down to $67.80), RAMS (down to $1.40), and JMB (down to $1.11).

These are all stocks that are typified by the following:
1)
funding requirements on a business measurement basis (ie: RAMS raises funds at the wholesale level to repackage at the retail level);
2)
higher appetite for risk (ie: MBL with all of its leveraged + derivative plays in action);
3)
exposure to customer funding sensitivity (ie: JMB, whose business model is highly dependent upon the continued take up and spending by the telcos, many of whom are now revisiting their forward CAPEX plans, and looking at reigning in spending in various areas); and
4)
no established business or operational model generating revenue (ie: SLX which continues to be a future based investment opportunity).

Even if GE were to announce an acceleration in its program, this would still take SLX through to 2010 (or later) before anything significant in revenue terms could generate.

The SLX U-program remains incredibly complex and is not something that can be simply packaged up and rolled out in a short space of time. Witness, for instance the further 12 months that has passed since GE's final approval was obtained, and the near 2 years that have transpired since the first announcements of due diligence being undertaken.

Of course, in a R&D business, such a leadtime is not considered long. But in a rapidly developing risk averse world, it may seem like forever. That's why the new DCF models are rapidly unwinding the potential future upside value of SLX and other pre-commercialisation businesses out there.

In many respects, this is similar to how many mining exploration companies have been treated, and will continue to be treated in to the future.

Despite there being a dynamic mining boom, cashflow is king.

I have long been (and remain) a proponent of SLX's future, however, like with all businesses, they need to develop a cashflow operation. This is what Fiberbyte is meant to be, but it hasn't yet succeeded and is likely not to anytime soon.

Why?

Because the products have been released and in the market for some 12+ months now (indeed, the first versions are now up to 18+ months) with no appreciable sales success yet.

In last year's Annual Report, any significant sales for Fiberbyte were not anticipated to appear "until later in 2007".

With the recent market nerves, this could even push back further.

In any event, any meaningful contribution from Fiberbyte will not materialise until 2008/9, given that only a partial outcome is possible for the current financial year.

Currently, SLX has bounced from $6.36 (back to $6.54) but the current selling pressure remains (sell side is 6x the size of the buy side).

With no more news to be sensibly released until the preliminary results (circa, September 12, judging by past year reporting dates), SLX could well be drifting in a vaccuum for the next 4 weeks.

Any institutions thinking of buying in, therefore, will likely be eyeing a lower entry price than currently is on offer.

Now that the $6.60 mark has been breached, likely the drift will be to somwehere in the GE entry to current price range.

Whilst the trading average is quite small (700 average on 259 trades, for 180,000 traded), so too is the buy side (1,300 average on 32 offers, for 42,000 sought).

The sell side, however, is near double this, with 2,300 average on 109 sellers and 246,000 currently on the sell side.

Hence, the downside pressure remains intact despite last week's supportive announcements.