east v.s. west conflict – read on!

Hi there,

The latest

I am new to this site and have enjoyed reading the 'non believer comments'....It will all end in tears...but for who! Having a scientific back ground and recently working as a diplomat in Europe I have the following comments to say.

TFS oil production:

One can't make broad comment on the likely success of the TFS model on the basis of some grungy old trees bought at auction and their realised valuation. One needs to stand back and evaluate the available evidence that is strongly correlated with the business model in question

Now TFS has published the results of its oil trials and they can be read at the following address. I suggest you read for yourself if interested...

http://www.tfsltd.com.au/sandalwood-products/yield-results/

Further evidence....it's funny in the old world of business just how businesses often know more than the market. The strong supply interest by Lush Cosmetics, the French perfume house Albert Vieille and Emirates investment confirms the model is strong and the oil production is highly likely to meet forecast..…TFS has actual realised advanced oil sales contracts. this speaks more than anything else about this company.

To all those who fail to see the oil through the leaves of the sandal wood tree (and all the associated additional value captured through the processing and marketing of products), you should remove the shroud of doubt – which of course instantly influences your impartiality. Take a couple of hours and DO the easy research on the business. Think deeply on what the business model is about and balance the positives with the negatives. I challenge you to do this……if you do this you may come to realise that there is a diamond staring you directly in the face. and they don’t come that often!

Mark my words the analysts are currently penning their updates post June 30 sales close as you read this comment. The May analyst reports are a very interesting read - post the Emirate Investment interest in TFC. Now with the 2009 results in, AND most importantly the model moving away from MIS sales…..expect to see new valuations on the company (de risking of sales) and a strong buy theme.

http://www.tfsltd.com.au/shareholders/research-reports/

Did I mention debt free? Have you realised that TFC will now have significant inward cash looking for a home!

Just in case you aren’t convinced on the model, consider the fact that Sandal wood is in dwindling supply globally because of deforestation (it’s a CITES endangered species!) It is not easy to grow (hemi parasitic tree) and because of its inherent value, poaching is rife in the countries it usually grows…..Now couple that with the fact that it is used in > 70% of world perfumes and religion.

Perfume houses could use substitute synthetics, however these are lower grade inferrior products ( not good in fine perfumes e.g. Channel) and do not fit the ethical and sustainable business models these players are moving toward. Also factor in the fact that only a very small portion of each bottle of perfume contains the oil…you start to get the picture...increasing price is not a significant factor in demand.

Now that is the Western countries demand dynamic sorted…..But what about the middle / east? Well sandalwood oil and the wood is culturally VERY important for Aisa and the middle east who have been using the wood and product(s) since XXX was a boy. These products are NOT a need they are a necessity! The Hindus require the wood and products for religious reasons and so does the Muslim world. China historically was a great consumer also and is on a rediscovery of its path pathway Did you know that the Koran actually lists and approves sandalwood oil as a perfume! There aren't many sanctioned perfumes.

Why would the French perfume house France-based Albert Vieille enter into an agreement with the right to purchase up to 25% of oil production for up to a maximum of 10 tonnes per year at market rates? Anyone remember the value of the oil (2.4 US Mill / tonne). Why has lush signed and agreement to purchase a minimum of 1 tonne / year and up to 15% of production per annum and in addition be issued rights in TFS shares exercisable within 3 years of productions?

Why would the Emirate Investment fund be interested in a joint venture and be looking to secure a minimum 200 hectares of sales / year from Middle East investors and develop a joint venture with a distillation plant of a minimum 12.5 tonnes of oil per annum with the ability to increase capacity to 50 tonnes? The Muslim world may also find investment in sandal wood more in keeping with their views on investment...which often are very conservative. There could be significant interest just through this fund alone.

Have we thought about the fact that there will now be two distillation sites, one in Australia and one in the Middle East? I’m not an accountant, but the distillation capacity suggests TFS is going to be planting a lot more trees going forward. If you do the maths on the oil , let alone all the additional value added products you start to see the potential. Forget investing in black oil....this commodity has been going up 20% in value / year for over 10 years! Buy TFC, not Santos! It's also a commodity play!

Now if TFC is moving away from the MIS scheme model and onto investment funds…there are two significant future facts. Firstly there is a global movement towards ethical investment as investors become concerned about the global environment. The problem for funds is that most ethical investments do not give good returns. I believe TFS will focus heavily in the future in this area and I expect this to be a significant source of future funding / investment. The type of investment also suits pension funds. Returning say 15% pa over the life of the fund over a good time horizon.

Now the second investment option for the smart funds is the shares themselves…after all if you are putting other peoples money into the trees and the company is growing / making money, then you can also make money out of the business. Watch this space as the company further develops!

The management will have great fun preventing take over / buy out! East v.s West....who gets control of the needed supply?

Now if you aren’t yet convinced - some final points:

Read Harvard’s – Porters five forces model…it gives you an idea of likely competition in the market a company faces and run the TFS model through and you will conclude quickly TFS is primed for supra normal profits.….not many companies tick all the force boxes!

1)The threat of substitute products – Threat to TFS low
2)Threat of entry of new competitors – Threat low (not easy and a significant lag)
3)Intensity of competition – Threat low competition and reducing
4)Power of customs – TFS – Threat low – customers are falling over themselves!
5) Power of suppliers – TFS – growers only get value for trees at harvest and TFC gets 30% of any premium above the forecast returns!. Not to mention harvest fees and all the processed product additional value!

I mentioned earlier in my email that I was a diplomat….I own a number of shares in the company and 1 year ago I had dinner with an Indian contact at his house. I asked him "if he knew anything about sandalwood?" After confirming that he did and that it is required for Hindu religious reasons, I asked him if he could show many any products. He them brought out sandal wood creams, perfume, a necklace, showed me the picture of his dead mother in a very large sandalwood frame etc…Did I mention Indians also cremate their dead with sandalwood, some spending upwards of 10K US!

On the way home from dinner I multiplied his products range by a % of the Hindus in India, which along with the Middle East and Asia (traditional consumers) are becoming wealthier….I got a tad bit excited about the future of this company..….I own a large number of shares and remain fully convinced on the future of this company.

Do yourself a favour – understand this company and then judge it…..it could make you a bucket.