Elvis,I hope an offer doesn't come too soon, as I'd prefer to...

Elvis,

I hope an offer doesn't come too soon, as I'd prefer to see as Cassel et al continue to realise the clear value in the business, by the ongoing liberation of capital.

While a takeover offer, were it to be materialise soon, I suspect might be made somewhere between 40c and 50c, I value CPI at close to 80cps.

With Current Assets of $158m and Non-Current Assets of $4m, this exceeds Total Liabilities of $111m by $47m. (Importantly, there are no Intangible Assets)

So, Net Tangible Assets of $47m compares highly favourably with CPI's current market cap of just $19m. Even if one completely writes off the extra $2m Receivable relating to Quality Group ($1m of the total $3m exposure has already been provisioned), then CPI's Net Tangible Asset Value is still at almost 2.5 times higher the current market value of the business.

In effect, the current share price is implying that inventories (valued in the 2010 accounts at $76m, most of it valued at cost) are only worth around 60c in the dollar on a net realisable value basis!)

And it?s not like this business is making a loss, accounting or cash flow-wise. Right through the GFC it generated positive operating profits (pre-abnormal items).

And with the various warehouse rationalisation initiatives and cost reduction benefits still to make their debut impact on the P&L, profitability will continue to surprise on the upside, just as it did in the past 2 financial periods (DH09 and JH10).

Oh, and then there's the small matter of $13.7m in retained franking credits..it?s not often you see a profitable company where the market value of the company is a little more than the value of the franking credits, and is also a little over one-third of its Net Tangible Assets.

It is admittedly not a good business, but when I started buying it it was valued at 25c in the dollar. Today it is still grossly mispriced, at just 40c in the dollar.

It is my contention that CPI will be worth a damn sight more than 45c in two years' time.


Cam