so much more potential??, page-4

I have thought about this company for a several weeks now. Here are some negative points that I think are important:

1) Apparently if accounts receivable exceeds 15 percent of annual sales and inventory exceeds 25 percent of cost of goods sold be careful.

2) Return on invested capital is pretty low.

3) Cash flow conversion is also very unattractive. It seems H13 compared to H12 show days receivable increasing faster then days payable. How this translates to the full year is up to you to figure out but this business is not a very strong cash generator.

4) The high probability loss of the refundable tax offset. AZV most likely will exceed $20m revenue.

5) I have doubts about the industry penetration of their highly touted Tacera product.

Judging form the above points I have to say the pricing power of this business is poor although they have a dominating market share in both Australia and New Zealand. Management in previous reports have stated cost pressures affecting profitability.

However the Sedco acquisition could make this an above average business with a successful integration of the acquisition and higher adoption rates of Tecera. I personally wouldn't pay more then 4.8c/share with a lot of assumptions built into the business. Someone looks keen at 5.2c but probably best to buy a higher quality business...maybe a restaurant...maybe

Note: These ramblings are most likely wrong so don't take them seriously! Please feel free to correct.