cellestis - whats it worth, page-7

G'day hogie,

Back in January 2002, I posted a simple valuation model for Cellestis on Ozestock (post 458). This is it, unedited.

CST contract valuation.
I have done a number of valuations on CST over the months always attempting to use the latest "intelligence". Perhaps at this point it may be worth trying to place a value on the contracts. Having such a figure to hand would be very usefull to make a quick company valuation as the contracts are announced.

So, I'll work it out as a value/milliontests.

Margin per test = $A10.
Margin/million = $10m
less 30% tax = $7m
divide by shares on issue 7m/82m = 8.5c

So, for each million tests contracted we are calculating a profit to the company of 8.5c per share.

Now, pick a PE to work out a share value:

PE Share Value
10 $0.85
20 $1.70
40 $3.40

Bear in mind that the above is per million tests contracted.

I tend to be extremely conservative and work on a PE of 10( ridiculous, I know but I prefer to be pleasantly surpised rather than disapointed).

For the example let's just say that CST contracts for 6m tests by June this year. At my PE of 10 this values the share at (6 x .85) = $5.10.

Don't agree with my assumptions? No worries. Very easy to substitute your own into above. That way you will be ready when the contracts are announced to put an immediate value on the share - cool huh?

Other comments. Don't forget the speculative side of the deal. The Quantiferon test can be developed for other tests and CST plan to release a new test each year starting from 2003. I believe that the Lymes Disease test is the next off the rank. The Q-TB Mk II test will blast the Japan market wide open (25m tests p.a.). These factors are probably best incorporated into your calculations by running with a higher PE. Check out the PE on other "serious" biotechs like Cochlear, CSL.

I hope that the above is of interest.

Peace
Forrest.



As you can see, my timings for sales may have been a little ambitious but I believe that the valuation model still stands.

A couple of changes have ocurred since then that should be mentioned.

* The signing of initial contracts has been slower than perhaps many of us would have hoped. This has largely been due to both the US CDC and the US Military directing some resources to various Terrorist related issues. The CDC guidelines are now expected in January 2003 and the postponed US MIlitary meeting has been scheduled for February 2003.

* The $A has strengthened a little. It may be necessary to adjust the margin in $A down slightly.

* The then quoted target market in the US of 10m tests pa has now been upgraded to a possible 15m tests.

* The QFTB2 test has now been successfully trialed and an exclusive licence for the necessary proteins has been executed with SSI.

* We have been given a date for availability for sale of Mk2 tests in some parts of the world (October 2002).

* It seems that the mentioned Lymes Disease test has been moved down the order of priorities in favour of the much more profitable QFTB2 test.

* The broker quoted figure of sales of 700,000 tests for breakeven has been corrected by the company to be "much lower".

Something that I think people tend to forget is that Cellestis is quite different than many of the other biotech speculatives around. Do not forget that unlike many others that have a product that "seems to work in early tests", CST have:

1. A working product, available for purchase right now (small numbers of sales are already being made)

2. Full FDA approval

3. Backing of the US CDC / US Military (they paid for the US trials and are paying for trials of Mk2 in US and Vietnam)

4. A known (and keen) potential market.

5. No effective competition

6. Adequate cash on hand

7. A speculative bonus (QFTB2, Lymes, Leprosy tests)



Re my valuation of $52.35 on August 23rd 2006. Of course it is slightly "tongue in cheek". However, it is not impossible. I am truly in this stock for the long term and if, as I believe, the Directors succeed in building a solid, successfull company then I will be more than happy to retain at least a part of my investment in the company for the forseable future, happily banking my dividends.

Hoping that I have been of some help.