give up, page-5

Since when is a franked dividend useless? They are producing pre finance post maintenance capex cashflow of approx $70m per annum. Even paying out 2.4 cents per year ( 1.2 interim and 1.2 final) this only represents $16 million per annum leaving about $54m per annum for debt reduction. They also reported to have $27 million cash as at end of June and with EBITDA at $8m per month that should be up to approx $40m (assuming they have not reduced debt). On top of this I learnt from a Perth property agent that SOT just recently received $8m (this alone would have paid a 1.2 cent divi) to vacate their Perth property lease. This property was one of their call centre ops, which they moved to Manilla, they had 3500 square metres of space leased for a long term at very low lease rates, allowing them to offer up the space by way of sub lease to the party prepared to pay the highest price. the landlord in the end paid them $8m to tear the lease agreement up so that he could offer the space to a starved Perth leasing market. If this information is true, and I believe the source, in my view the $8m, representing some 8% of their market cap, is material enough to have required disclosure. Thus another $8m in the kitty makes the likely cash balance up to $48m currently. Hardly cash strapped and unable to pay a divi!!! Even if they were, which they are not, they could have put in place a DRP and had it underwritten, which would allow shareholders to receive dividend whilst they also retained full cash for debt reduction.

It appears to me that the have issued two earnings downgrades without actually calling them downgrades. Initially 7 February they state that the merged group will do EBITDA of $108m pre synergies for 2009, then 7 April they say "in FY 2009 .. EBITDA for the year is expected to exceed $100m" - note no mention of pre or post synergies, and then on 25 August they say "the company expects FY2009 EBITDA to be approximately $100m" again no mention of synergies. I estimate synergies should have been $15-20m and thus the starting point was EBITDA of $123-128M and now we are down to approx $100m. Given that the board, including Teoh, did 2 months of reciprocal due diligence there are some questions to be answered.

By my calcs this stock is now trading on about 2 times EV:EBITDA. this is a joke when compared to the peer group ( check AMM presentation yesterday, note that they did not include SOT in earnings multiple comparison because it is so low) and reflects very badly upon Teoh and the Board.

They will be grilled come 23 September