investment thesis review

Investment Thesis Re-stated:

- The assets are worth more than their accounting value - at the moment they are at cost value, ascribing zero capitalization value (or future potential) to what supposedly are high quality developments for relatively safe customers such as the NSW and VIC governments, and inner city residents. The finished product will be greater than the sum of its parts. For instance the retirement villages are stated to be aiming for a 20% IRR. Given time the assets will be at a positive multiple of their stated value.

- Given the 2-3 year development timeframe (which the revised debt terms allow for), the cashflow realised from property sales should justify the forgiving of the corporate debt overhang, and be able to repay the remaining existing debt.

- The returns on the projects are demonstrated by the cashflows, which were about $20m (with a reduced interest burden) in HY11. Extrapolated this is $40m p.a., and set to rise as the projects ramp up, and dwellings are completed. (There is a year or two time-delay for cashflows to be realised, so the cash received in the last half is actually from developments begun in 2008-10.)

- Assuming maximum dilution on 3.4bn shares at the 5 year end of the BOSI prefs, (it's currently about half that with unexercised prefs and options), at 1c the company's equity is selling for $34m. Today it is half that ($17m).

Trading Outlook:

- As of today the large buyer with million+ bids has taken a break it seems. Looks like former noteholders will have to stick it out if they want to avoid a greatly marked down recovery of their investment.

- My sale target would be none at present, as I would like to see the prelim report and give the projects some time to prove themselves. Global equities seem to be at a nadir also. A rebound will have greater effect on microcaps such as BEC.

Nagging Questions:

- Why the 3c spike before the vote on such heavy volume?
- Now the risk of insolvency has passed, surely the scrip is worth slightly more than what it had traded at previously, relatively speaking. For the moment at least, the emotions of supply and demand win out against business prospects.

I will check back in August. This stock is still dynamite IMO, could send you to the moon with a multiple return overnight, or blow up in your face (I guess the latter has already occurred, so less risk of that!) Until then, Arrivaderci.

Ambo.