advice please

I am really having a close look at my sen shares this weekend trying to make up my mind what to do so could I please get some help from my fellow sen thread posters.

Firstly I need to post my sen trading diary and work out my profit / loss which to be honest I havn't even done till today...

10/04 BUY 200000@12 = (24000)
05/05 BUY 100000@24 = (24000) 300
12/05 SELL 30000@80 = 24000
12/05 SELL 70000@90 = 63000 200
03/06 BUY 100000@51 = (51000) 300
04/06 SELL 100000@45 = 45000 200
06/06 BUY 200000@31 = (62000) 400
06/06 SELL 100000@45 = 45000 300
07/06 BUY 100000@35 = (35000) 400

Realized Sen Profit - 63000 - 6000 + 14000 = 71000
Paper profit loss from peak sen equity = 200000 * (91-35) = (112000) OUCH!
Current paper profit = 200000 * (35 -12) + 100000 * (35 - 31) + 100000 * (35-35) = 50000

Clearly I need to do more to protect my profits. I have been lazy and the market has punished me for my blase attitude, so lets get down to some serious analysis.

Technically sen has been in a downtrend for many months and it is unclear at this time if this has changed to a more sideways movement or even an uptrend. Recently (last couple of months) most trading has been in the 34-36 range which is what the market curently thinks is fair value at this time. In fact there has only been 6 trading days in over 12 months where the price has closed below 34cents AND been a part of both a long and short term down trend. These days also had high correlation with XJO and were a part of the typical tax loss selling. I find this 34cent level significant.

In an effort to change my ways and protect my remaining paper profits I need to try and work out the remaining down side risk and balance that with the possible upside.

For analysis purposes I will assume the funds from ecrypt will form part of the bottom line, most people seem to think this is so, some have said the company has specifically stated this, asx announcement 4/4/6 titled "senetas announces us6 million dollar deal" suggest this and I have read numerous news articles like this - http://www.highbeam.com/doc/1G1:144113028/Senetas+on+track+for+strong+profit+result.html

So what is the worst case scenario? I think senetas announces 11million pretax profit, 9.8 million is ecrypt leaving about 1 million profit after tax from ordinary activities. Cash is low so they also announce that there will be no dividend. Cypherblade deal has fallen through. What valuation would you put on such a scenario? Well in september 2004 when sen announced in excess of 5million net profit the share price settled at 12c. So I will abitrarily assign 12c as my worst case scenario. The probability of sen reaching this value again I will again just guess at around 2% chance.

Now for best case scenario? Sen have 11mil profit from ordinary activities and include ecrypt deal giving total pretax profit of 20+million. Dividend increases. Cypherblade deal is announced with major us telco distribution. Ethernet encryption sales go through the roof. Guidance for next year $15mil after tax. Valuation? Say a PE of 20 on '07 guidance gives market cap of 300mil or 0.65cents / share. Probability of this, I'll call it 10%.

Most likely scenario? We don't get the "great" market update until after results are out at the end of august. This seems unreasonable to me as everyone is aware its coming but how can we put a value on it if we dont have any details? So anyway results come first and short term price behaviour is based on markets interpretation of these results. I say most likely 13.4 million pretax profit including ecrypt/ctam liscence. Now lets subtract the sale of ecrypt but keep the liscence fees which seems fair to me leaving about 9.3million pretax from normal activities. This represents an increase of 25% over last year. After tax is another story of course and is meaningless but equal to about 6.5 million or a 35%decrease over last year. This gives an EPS of about 1.4cents / share and applying a sector PE of 16 to that gives 22cents or a more aggressive ratio of 24 gives a value of 33.5 cents.

I do think cash is a little tight as most of our profits this year are in the form of infoprotect shares not cash. We had about 1million in buy backs in the second half of the financial year compared with 3.6million prior to that. We started the second half with about 9mil cash and 3.5 went to dividends and 1 to buyback leaving approx 4.5mil cash. This should allow a final dividend of 0.9cents / share the same as last years final dividend and thus being market neutral.

Then two or three weeks after results are out at the end of august the great market update is finally released, details of cypherblades and telco deals, next years guidance and results of early ethernet sales are given. All these things I am confident will be hugely positive, timing is the only issue as unfortunately it looks like they are being withheld.

So after actually sitting down and thinking about things it seems my most likely scenario given the above assumptions is for more short term pain in the range of 22-33.5 cents following the short 3 week period between release of results and further market guidance. Taking the midpoint of about 28cents, i estimate the probability of sen shares seeing 28cents at about 50% if and only if sen closes below 34cents which seems to be strong support at present. This would also fit with a double bottom on the charts.

Thus I think if sen closes below 34cents I should sell half my holding (my trading shares) and let my long term holding ride for the long term. And that is that :)

I would appreciate any comments, advice or suggestions. I really dont have a clue about valuing companies so if anyone could set me straight that would be great.