discussing valuation, page-6

Of course sentiment is such that the stock could fall further, to 35c or below. However, I don't believe it will fall materially further.

It is heavily oversold on chart technicals (look at RSI's etc). A 49 percent fall in 2 days is large by any standards, but particularly with only a small 'miss' on EBTDA guidance. Peterkd is right in identifying a large part of the motivation behind the selling to this point. The fall was amplified because they guided to no miss only a few weeks ago which hits confidence again in management. Throw in that revenue guidance was probably lower than expected underpinned by comments on greater competition and it was always going to be hit as this has come on the back of serial disappointment. Cutting the dividend is a great headline from which to orchestrate a further sell down of a stock but here it totally makes sense and is a positive in my view because it facilitates material debt reduction.

I would be very nervous actually shorting the stock from here because it is vulnerable now to a sharp reversal or takeover bid in the medium term. Short will cover a fall of this magnitude in a stock like this where there is not threat to survival (debt is perfectly manageable) and where good profitability is retained at a comparatively low (depressed) valuation. If short traders cover their position they are just as likely to turn long knowing that a lot of short term selling will have been done and in a less liquid market the reversal can be very powerful. This is often how they work.

Stock investing is all about the trade-off between risk and return. At this valuation ISD has, IN MY VIEW, relatively limited downside with good potential for a short term reversal and very good long term upside for reasons I presented earlier. The cash generative nature of this business is a key factor in my view. It is appetising for acquirers (trade or private equity) if valuation falls further or stays where it is. It provides for debt repayment which makes the equity look a lot cheaper. With the cost saving initiatives coming through they should be making at least $25 million ebitda (with stagnant growth, my worst case view) and if debt is reduced to about $20 million in the next 2 years on the back of this, and as some degree of confidence that the worst is past grows, then a 7x ebitda multiple for enterprise value would still look cheap. That would imply $175m EV. Less $20m net debt, gives $130m equity value which equals a share price of 65 c (up 57%). That in my OPINION (only) is a low case scenario. Markets discount at least 6 months into the future, so I think this share price is possible in 18 months under this low case scenario.

I believe it is more likely to see some modest growth and cost saving take the ebitda closer to $30m, still low on historical comparisons. If this happens the stock will likely trade back up over 80c in that period and potentially a lot higher with growing confidence of recovery and a return to focusing on the growth potential, leading/strong market positions and cash generative features of this business.

I now think the all important risk - reward trade-off is now skewed heavily in favour of a higher share price, short and medium term. This is an 'investable' (my phrase) stock for institutions, notwithstanding the recent profit disappointments, because it remains very profitable, has a sufficiently large revenue base, is liquid, has strong market positions and throws off cash. To build any sort of a position in this stock they may well not risk waiting for a few cents more where it might be relatively illiquid in any case.

All my opinion, but I think there is very considerable upside to miss out for the sake of a few cents downside. You won't get a $120 million, relatively depressed revenue base, earning cycle low 20% EBITDA margins / 15% EBIT margins, trading on a $70m market cap for long (assuming it falls below 35c). I don't think it will get there at all but I am bound to be proven wrong.