Analysis Update - CGS - Cogstate

Analysis Update - CGS

CGS 3rd quarter results show an increase in revenue, and more importantly, operational cash flow positive. The revenue over the last four quarters show a steady increasing healthy trend compared to their respective quarters of the previous year.

However, note that in the same quarter last year, CGS was more operational cash flow positive, had more cash. It does seem that the business is establishing itself, able to generate strong revenue going forward. It has established a presence in the east coast of the US to serve both US and European markets. CGS mentioned an increase in headcount in the US for sales and support.

Though the business and revenue is growing, there is a concern that it may not be able to be profitable in time when compared to the cash level. Although this quarter is cash flow positive, it only has $1.7m in cash. Operational costs without revenue is $1m in the last quarter. It cannot afford significant reduction in cash in the future. In terms of profitability, the last half year net loss was $0.95m compared to 2005 net loss of $1.2m. The question is if the next half year result will be a much better net result.

Comparing numbers with the last analysis, significant change is the P/NTA ratio which increased from 2.61 to 3.15. The Quarters to Burn-out rate is of course negative due to net positive cash flow this quarter.

Recommendation: Wait until last quarter 2007 result.