significant upside potential at current price

IMO Candle is looking very attractive at current prices. I think the market has over estimated the effect of the profit downgrade and thus oversold the stock. My reading of the profit downgrade announcement is that the problem is restricted exclusively to one recent acquisition (Lloyd Morgan Australia), and will only effect the December half results. Given the continuing tight labour market, CND is likely to return to traditional levels of earnings growth during the June half. So while the FY08 full year result is likely to be flat or very slightly lower than FY07, FY09 should see a strong rebound.

Even on flat FY08 numbers, the stock is currently trading on a PE of around 10. On FY09 numbers, the stock is probably trading on a PE of around 8.5. Given the growth profile of this stock, under favorable market conditions, it should be trading on a historical PE of around 15. So there is plenty of upside potential here.

The company is also paying a massive 7.8% dividend, with the FY08 payout likely to be the same as FY07. I.e., the profit downgrade is so minimal that the dividend will not be effected.

Once the market realizes that the sky is not falling in, I see CND stock recovering to above $3 in the short to medium term. Looking ahead 12 months, and assuming the current share issue, I expect the stock to be trading at around $4 on the basis of a solid FY09 outlook.