Hi Septic, Thanks for your response. Do you mind if I ask how...

Hi Septic,

Thanks for your response. Do you mind if I ask how long you've been holding?

As for the points you raised:

1. That is true but the last four years are a fairly tough period over which to measure their performance. Spending for their markets basically froze (3-7 year replacement cycle, would expect some catch up spend here), and the high AUD rendered the model they were operating under as uncompetitive (Aus based manufacturer). A lot of companies have only recently recovered from the impact of the GFC and then the 2010/budget crisis period, it takes time to restructure, my bet is that CMP are now positioned to emerge from that restructuring with earnings growth.

2. A couple of years ago the management team really had two options. Either sell out and move on, or take the hard decision of making the changes necessary to be able to compete in the new high AUD environment. They chose (whether by force or by choice) to implement the latter. The founder owns 62% so we can be sure he will be looking to maximise the value of his investment. I am of the view that the business today (restructured, offshore manufacturing, etc) is a far more attractive takeover target than it was a couple of years ago, and the growth prospects for earnings are now much stronger.

3. They do have great products, that is represented by the market leading positions they have built in the sleep diagnostics market. But as you are alluding to there is a difference between having a great product and being able to sell that product profitably. The reasons that growth is yet to come through, in my view, are 1) reduced spending by CMP's customers (we have seen this improve last couple of years), 2) reduced competitiveness/higher cost of production vs competitors, 3) inability to secure funding. Number 1 has improved and as I mentioned I suspect some catch up spend will be required for capital equipment. 2) has been the focus for the company for the last two years and over FY15 that process (of offshoring manufacturing) will be largely complete and consequent GP margin improvements will flow through and 3) traditional bank funding has been impossible for CMP in the current environment as banks won't lend and the share price has made the cost of equity prohibitive. I suspect that will no longer be an issue and the company will be able to secure traditional bank funding sometime in FY15, with that will come both increased ability to fund growth and reduced finance costs.

4. I agree somewhat that the question is whether or not management have the capability to execute on the opportunity at hand. But I'm of the view that the price on offer and the current performance of the business mean that management don't have to hit the ball out of the park in order for CMP to be a successful investment at these levels. Only modest growth in revenues in FY15 would make CMP very cheap, and this assumes no contribution from the medical innovations division.

Agree there is value in CMP potentially being taken over, but my investment thesis is based purely on improvement in the core business.