Ann: Business Update, page-18

So my question again is, is your issue still with organic growth or is it now the lack of financial metrics to sink your teeth into?

Let's deal with each of those separately:

Organic growth:
An update like this one, where organic growth is spoken of, is no evidence of organic growth. The only place one can confirm (or otherwise) it is in the audited financial accounts, where one is able to synthetically strip out the impact of acquisitions, to arrive at what the core/legacy business is doing. And for the past 2 or 3 results, there is little evidence of it.

Lack of Financial Metrics:
When it comes to assessing what company managers say and do, I always like to think in terms, not of owning a small bit of a company that happens to be listed on an exchange somewhere, but as if it was a private company of which I was the controlling (or perhaps sole) owner.

And then, by way of analogy, to assume that the company in question is a simple one, say a restaurant.

If, during a catch-up meeting with the manager of restaurant, he said he was going to refurbish the kitchen, I'd want to have some idea of how much of my capital is going to be needed, and what the benefits of spending the money are expected to be, in other word's what kind of return I'm going to generate on my scarce capital.

Ditto for if he said he was going to open a new restaurant for me in a different suburb:

How much will it cost?
What's the expected payback period?
What is the catchment revenue opportunity set?
What kind of operating margins are anticipated?

Heck, even just the first two will suffice if there is commercial sensitivity around more granular detail. Or even just the first one, i.e, hte capital outlay.

In CLG's case, its akin to, "Hey, shareholders: Heads-up. We're heading to Mexico."
No financial indicators whatsoever for the business owners to either celebrate or furrow their collective brows over.

As for the Melbourne situation, taking that back to the privately-owned restaurant analogy, it's equivalent to the restaurant manager saying to its proprietor,

"Um.. there's been a commissioning niggle at the new restaurant we're starting up, but no worries, we'll just build another one somewhere else. Oh, and by the way, we're also going to open yet another restaurant outside of the suburb in which we currently are, but we aren't saying where that additional restaurant will be and how much it is going to cost."

If I, the proprietor, receive that kind of update from the restaurant management, I'll be dissatisfied with it.

Now substitute "I, the proprietor" in that last sentence with "the equity market market" and "the restaurant" with "Close the Loop".

Don't misunderstand me; its a decent business in the right place at the right time, and is fundamentally cheap.

But the point is that it has been fundamentally cheap for going on 12 months now, and I am increasingly of the view that it is because the sorts of shareholders a company would like to have on board (i.e., the discerning, long-term and supportive institutions and family offices) are unwilling to commit their capital to buying shares because all they are shown is the "macro story", when the thing that drives them is cold, hard financial metrics.

This latest update is full of nice macro stories, but financial metrics are absent.

So until it graduates from being a mere "story stock" run with a "trust us" manner of communicating with the market, that undervaluation gap is unlikely to close, in my opinion.

That's the nature of my gripe.

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