A good analysis

Why this bargain growth stock could power you to an early retirement By Mark Woodruff - July 1, 2014 | More on: SLX 0 inShare Here is an opportunity to buy a growth stock at a significantly discounted price. I have been following the fortunes of Silex Systems Ltd Australia (ASX: SLX) for well over a decade. The one-time subsidiary of Sonic Healthcare Limited (ASX: SHL) became a separate entity in 1996 and went about establishing the commercial viability of Silex technology. Silex stands for Separation of Isotopes by Laser Excitation, to enrich uranium. This technology is the only privately held information that is classified by the U.S. government. This is the opportunity, as while the company has to keep the market fully informed, such a classification leads to secrecy. This was illustrated on an ABC 4 Corners program, when the reporter was restricted in pursuing his story by security guards and endless barbed wire fences. In my opinion, the company has enormous upside potential via its licensing agreement with Global Laser Enrichment (GLE). This is a business venture majority owned by General Electric Company (NYSE: GE), a global industrial colossus. Because the technology of Silex is classified, the normal 20-year patent protection becomes a perpetual royalty of between 7% and 12% of GLE’s revenues. GLE has invested hundreds of millions of dollars to date and continues to fund the program towards potential construction of the first commercial production plant. Yesterday’s Announcement: “Stick to your knitting” means that one should concentrate (especially in business) on what one does best. This perfectly summarises yesterday’s results of a major strategic review by the Board of Silex Systems. It resulted in a 5.5% rise in the share price to $1.16 on a day when the benchmark S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) lost 0.91%. The strategic review aims to refocus efforts on this technology, the primary economic asset. So the company is pursuing strategic partnerships or transactions to effectively divest three subsidiary businesses it has become involved in, subsequent to the foundation technology. I believe it is also a show of faith in a positive outcome for GLE’s view on satisfactory economics, market conditions and meeting the necessary regulatory requirements for the establishment of the first commercial production plant. So What: These divestments will result in a reduction in cash burn of between 60% and 80% in FY 2015 (compared to FY 2014) and further significant reductions in FY 2016 (without factoring in any income that may result from potential transactions). Silex CEO, Dr. Michael Goldsworthy said: “With current cash reserves of approximately $64 million, zero bank debt and a plan to substantially reduce cash burn and overheads, we will remain in a strong financial position for the coming years which we believe will see us through to revenue generation”. That revenue is the milestone payments and royalties to be derived from the Silex technology. Since the Fukushima meltdown in 2011, uranium prices have also melted falling around 30% in the last 12 months. The price of Silex stock has fallen 48% over the same period (and come down from 2007 highs above $12 to $1.16), affected by sentiment weighing upon Paladin Energy Ltd (ASX: PDN) and Energy Resources of Australia Limited (ASX: ERA), which is majority owned by Rio Tinto Limited (ASX: RIO). Now What: In my opinion, this is a great time to buy Silex Systems for the medium-to-long term investor. It is always better to pounce on shares in the tough times when some upside is in prospect. This not only relates to today’s announcement of a renewed focus and improving company fundamentals, but also recent news that Japan intends to restart at least two nuclear reactors, potentially unwinding some of the recent negative market sentiment