M&A target?

• Brad said, regarding competition, Cogstate is a minor player in a market, overshadowed by larger U.S. firms with broader service offerings.
• The details of a previous takeover offer about a year ago remain undisclosed.
• The testing protocols and particularly the database could be of real interest to a larger company.
• With a market cap of around $220 million, CGS is small, making it an easy acquisition target for international companies, even at a premium.

Succession Planning:

• In the prior meeting, Brad acknowledged that he won’t be there forever, so at some stage there will need to be an exit plan.
• Who knows when that will be could be 5-10 years, tomorrow?
• Is M&A an option at the right price?

Capital Management:

• The SOI trend has been increasing until the last few years
• I have no time currently to dig into the actual figures, but perhaps the buyback strategy is offsetting options/incentives?

My outlook:

I’ve been contemplating my position, over the past year, the lack of news has been discouraging. I was waiting for the results and the recent SM interview to shape my perspective. My conclusion is that CGS appears positive from this point and being somewhat out of favour with the market makes it attractive to me.

The biggest negative in my eyes is the lack of liquidity and understanding of the business, which may keep bigger players away. It also potentially creates an opportunity, albeit a somewhat uncomfortable buy…

Having held CGS for about 4 years, I’m well in the money and topped up yesterday. I also anticipate there may be an opportunity to buy in June re: tax loss selling.

held

Similar to @Chagsy, I came away from the recent CGS CEO meeting with a more positive take than I got from the 1H 24 Preso.

I went into this with similar concerns to @Seymourbutts following the 1H 24 main around capital allocation following lower revenues - as articulated here https://strawman.com/reports/CGS/Seymourbutts?view-straw=25367

My core thesis for this business is that they are selling picks and shovels to the Alzheimer's gold rush with some big pharma deep pockets chasing a massive market and needing CGS’s best in class software to conduct trials.

Buying back

I asked about this in the interview, as did others via @Strawman.

I was pretty happy with Brad’s response and the thinking behind the continued buy back … provided the expected cash flows from pipeline materialise in the anticipated timeframe.

This seems to be a show of confidence by mgmt. and belief in the long term value – noting that mgmt. have a clearer view of the pipeline quality and timing than they communicate to the market.

Also that they have sufficient cash reserves to fund their growth and expect to FCF positive in FY24.

Management

Management is central to my thesis for CGS – specifically that they are experienced and aligned.

Directors and KMP’s have skin in the game w ~20% insider ownership.

The 20yr tenured CEO has a 3-4% holding depending if you fully dilute the share count to include options (which I do as they are mostly in or close to being in the money). This is 9x his Annual Salary.

Directors have an average tenure of 12 years, over which period the share price is up 4x (11% CAGR).

They have picked up some bruises with the slower than expected trials and the M&A farrago a year or so ago.

I am trusting mgmt. to have learnt what they can from these incidents and to be better prepared for similar unforeseeable future events.

Disc: Held.