Ann: Market Update , page-44

yep orbis buying with their ears pinned back however they are about to hit a big fat brick wall with the 20% takeover threshold.

Given Orbis is a strong net buyer at this stage, it is almost providing a floor in the share price.

What happens when Orbis hits the threshold? Their business model is not in takeovers so its safe to assume they will acquire up to the legal limit. They can acquire more through the creep rule however its not much of an additional allowance and it is spread over time.

There is so much uncertainty with the business i think there is going to be strong volatility on and after 28 March, either in SP appreciation or depreciation depending on the news.

The key areas of concern that the market is waiting on for clarify will be:-

- managements take on capital management initiatives. Is a special dividend or capital return going to be provided in the short term. Or perhaps a share buy back program? What about the hefty receivables on the balance sheet? Is management going to give further clues to the market as to its intention in terms of cash usage once those receiveables are brought in? Also here is something I am going to throw out there - what about a share consolidation. I know these certaintly dont change valuation at all however may assist in extending the general clean up and refocusing image that current management are looking to project to the market. 140 mill shares at $4.4 per share is a lot tidier than 1.4 billion shares at .44 cents per share;

- what write downs and impairments are to be recorded for FY11 - is there a reasonable expectation of future writedowns, i.e. is management going to take a wait and see approach to further writedowns depending on FY12 trading or is management taking a wholesale broom closet clean out approach for FY11 - I think the market would prefer for the slate to be cleaned with FY11 to be treated as a blow out clean out year;

- what is the expected impact on the remaining business as a result of the Pfzier loss;

- what resizing strategies are going to be adopted to resize the business given its new narrowed focus and Pfzier loss. What cost savings can be made in reducing corporate head office costs etc etc;

- whats the class action status. What is managements take on the risk to earnings posed by any litigation?

- guidance of expected EBIT for remaining business once writdowns and resizing has been undertaken - is management likely to provide FY 12 guidance given they will have experienced almost one quarter of trading for FY12 and almost 2 months of trading by the company in its new reduced form. This will be a big one for the market in terms of pricing the business going forward;

Can anyone think of any other issues the market is mulling over?

In terms of going forward given the new focus of the business I think a good peer val comparison would be a company like metcash which is essentially a wholesale distribution company. MTS is trading on current PER of around 12 from memory. Orbis is suggesting ongoing earnings of 5cps which would value the company at +50cps (of course excluding excess cash which is circa 20cps+) if we take a discount to MTS and apply a PER multiple of 10 - i think its fair to say SIP should trade at a discount given recent performance vis a vis the strong performance by management of MTS.

Of course its all just wild speculation until we hear what management has to say on the 28th, which of course if quickly encroaching.