From the wording and tone of the Ministerial press release, it appears highly likely that the other shortlisted party could win this contract, due to the strong aboriginal association. I was initially concerned that if this contract was not eventually won by TFS, it would mean a cessation of business already being done. TFS has been receiving product sales revenue of around $18-20M for Australian sandalwood sales up to now. Today's share price reaction could be in response to this concern.
However, on reading the Cannacord analyst report from February 2016, this level of revenue from Australian sandalwood is already expected to decrease by half to $10M this FY and to $5M next FY, then to zero after that (while TFS ramps up its Indian Sandalwood sales revenue). Therefore the worst case downside is negligible change to TFS's valuation.
I would be happy if TFS did not continue with the Australian sandalwood business as it could distract management from the main game (Indian Sandalwood). Also, because of the competitive bidding, the margins may not be worth the bother for TFS.
TFC Price at posting:
$1.57 Sentiment: Buy Disclosure: Held
