upgrading cix to strong buy, page-10

Fellow CIX owners (or prospective CIX owners),

I have followed the travails of CIX for several years. It reminds me of another deep value stock I bought about 12 months ago, a company called CPI Limited, which is a paper merchant (not sure if you've seen the BBC comedy series, The Office? That's CPI for you).

Like CIX, I sense CPI is valued at some 30 cents in the dollar, but it differs from CIX in two fundamental ways. It:
1.) operates in a far more challenged, more competitive industry, and
2) has a new management team which I sense is more competent and shareholder-value astute than Kirk et al.

As case in point, CPI management have clearly articulated a mechanism to restore the company to its full value, namely a stock rationalisation and warehouse consolidation programme with a clear, two-year time line. As a result the price of the stock has started responding accordingly.

This is what CIX needs, in my view. Over the past 5 years I have listened in on umpteen conference calls with CIX executives, and read reams of CIX financial literature, annual reports, presentations, and broker research and have never once hear it lucidly explained how the franking 12c per share of credits can be expunged to shareholders (most of who are Australian domiciled). Or what the end game is for the how the unutilised tax losses? Or what could be done to appropriately value the book in the market's mind. I mean, just look at the Sirius project; how long has that been going? And its still not finished (although to be fair the the end now seems in sight, so at least it isn't an indefinite thing, even though it has come to feel like it!).

I do have a view that the line in the sand is being drawn by the board for Kirk. And the consolidation of the shareholder register in the past few months will only serve to put greater pressure on the board to precicpitate and outcome that is different to a company still plodding along at the same valuation nexus in 12 months' time.

Accordingly, I have been acquiring the stock in recent weeks/months (as you probably know it's a bit of a challenge to pick up stock). I'm not young, but don't believe I'll die wondering what will be the ultimate destiny of the company.

As for this financial result, it looks to be of a far beeter quality compared to some of CIX's prior announcements. Even with the assistance to NPAT of the reversal of the LAT provision ($1.2m), the profit on sale of SUA ($1.1m) and commerical strata portfolio ($0.2m), the tax benefit ($0.8m) and the improved investment returns ($0.6m), these look like they were partly offset by the excess catastrophe costs in excess of half year allowance ($1.5m - $2.5m).

I thought the GWP and NEP growth were impressive, and I also note in the cash flow statement the healthy reduction in underwriting and administration expenses

And also very pleasing is the confirmation that the Company has negotiated a new, unsecured bank loan of $20.0m and repaid $5.0m of its existing loan of $25.0m. The term of the loan is for 2 years from the draw down date of 28 July 2010.

So I believe this is one of the most positive financial results from CIX for a long time. And it looks like the benefits of the Sirius project will finally start to make their debut benefits in the current financial year.

As I said I don't believe I'll die wondering...

Regards and Prudent Investing

Cameron