Friendly Dwarves Looking at the current accounts CDD are...

Friendly Dwarves
Looking at the current accounts CDD are producing, you get a false sense of the business, as you are seeing the washup from a ridiculous splurge. However if you look through the current period, you have a grey hair business with quite rare skills and abilities, that has a great ability to generate cash from very little in the way of investment. If Cardno had stayed away from an acquisition binge (in resources related projects too at the peak), their return on assets would be very high. They didn't and ROA looks very low in their accounts, as the denominator has been inflated, first by their initial pre-listing and listing, and then by acquisitions in a boom.

The main risk is that key people leave as teams and start their own consultancies etc, but obviously they would not have scale, which is what may be keeping many in place, I have little clue of the precise legal issues.

The best clue as to the returns from the underlying business are from before the balance sheet was inflated in 2003, the accounts for 2000 to 2002 are still available on the asx. The opportunity arises from a business that requires very little capital to generate a large return. When the right work comes up, the fees can be outrageously high, as there are very few who can do the work. In the event of a BP spill in the Mexican Gulf, then the customer is a bit like an uninsured patient in the US health care system after surviving a heart attack.

The good thing atm is that there is little risk of the business going broke, as the balance sheet will be strong. If everything is written down, we will hopefully go back to a ROE in the mid teens over time. They should have excellent look through numbers.

Still - the short is there with dilution coming through. But there is no reason why the business cannot produce an npat of $70m in a couple of years time, with a peg rate of 15%. SP in that scenario might be 14c eps x 15 PEG = $2.10, after the new crap raise. Then you might wait for the next disaster or resources boom, if you live that long as a Dwarf. oops ;-)

Hence Crescent's interest, and mine.

All IMO

But I still hope you can make money from a tactical short position from here, partly for my own selfish reasons.