looking far less compelling, page-18

Thanks for the balanced reply Camden 55, you seem to have a good understanding, and its very nice to get both positive and negative feedback on here. I hold a reasonable (in terms of my portfolio!) parcel of CSV shares, and I have been back to re-visit CSV in light of the 2010 results, your post, and the recent share price weakness (which I still think has been overdone).
I have also looked at DWS, and believe CSV to be the more compelling investment. I am more focussed on capital growth rather than dividends, so this may be a different focus from you.

1) EPS growth
My underlying strategy for investing is on the basis of EPS growth. 15% profit growth does not mean sh!t if they need to issue 20% more shares each year. CSV has managed to increase its EPS significantly over the past 3 years, and from the guidance given it appears that EPS for 2011 is forecast to increase significantly. This is also consistent with a number of analyst reports (Morgan Stanley is forecasting FY11 EPS at $0.22 in their report dated 26/8/10, for a yoy increase of 39%), however even an EPS of $0.20 (consensus) would provide EPS growth of 26%. Based on a current P/E of just over 10, CSV appears to be undervalued.

EPS (cents) over the last three years:
DWS CSV
2011F 16.0 20.0
2010A 14.0 15.8
2009A 12.0 13.3
2008A 12.7 11.0
From the above, it appears that DWS has not really managed to do anything material in terms of EPS over the last 3 years which is also reflected in the share price falling from around $3 to current levels of $1.65. The strong dividend appears to be the main thing supporting the share price, and given the high payout ratio, any weakness in earnings will directly affect dividends, and therefore the share price.

2) Stability and cash flow
I agree that CSVs free cash flow is not as strong as DWS, however they are two very different businesses, and it makes comparison meaningless.
CSV has strong operating cash flow, and the high capex is a result of the significant expansion that they have been doing over the past 3 years. I also dont understand your point about the working capital regarding the toner and cartridges Im not sure what you mean. I am also interested to hear why the ongoing service and maintenance of copies is not a good business model.

As Mikemennel has stated previously, the majority of CSVs profits and revenues are derived from long-term contracts with a variety of large business and government departments. CSV have diversified away from pure IT services to printers and copiers, which appears to be relatively low risk given their dominance and management experience in the sector. The Fuji contract loss appears odd, but the new Canon deal looks far better in the long term. Also, for a company with strong cash flows, a mild level debt contributes to a more efficient capital structure, but as to exactly what this would be for CSV I could not tell you, but I imagine it would be more than the 0/100 split of DWS.

DWS appears to be a much more conservative business, however this comes down to risk / reward. They have not taken an aggressive growth strategy as CSV, hence the lack of growth in EPS.

3) Governance
On this point I agree with you Camden. A private company turned public will always have some legacy issues in respect to governance and shareholder accountability, and governance has a lot to be desired from an ASX 300 Company. My hope is that once more Instos come on board they should put a rocket under the board and get them to make some best practice changes.

Also, my view is that a smaller audit firm such as Pitchers does not have the capability to audit a reasonably complex and diverse business such as CSV, particularly where there have been numerous acquisitions and different systems in place. This is also reflected in the poor level of disclosures in the financial statements regarding the acquired businesses. Hopefully again this can be rectified in the future. I for one as a shareholder would be happy to decrease profit by $100k per year for the sake of having a big four firm do the audit.

So in summary, I agree that governance and acquisitions are an issue, however I continue to hold on the basis that:
1)EPS growth history and forecast;
Stable business with strong cash flows;
2)Management appear to be competent and have a very good understanding of the business;
3)Increased exposure in the market people are starting to take notice of this stock, and I dont believe the current market price reflects the growth options or
I think the current price represents an opportunity; however, I plan to reduce my holdings at levels over $2.50 to reflect the risks.