TS03 Inc Trust Units TSTIF

Canaccord Comments this Morning

[BioBilly]

TSO3 Inc. (TOS : TSX : C$0.68) - Speculative Buy - Target:C$2.00
Formal strategic review process commenced; no change to SPECULATIVE BUY rating; target lowered to C$2.00 (from C$2.15)  
Investment recommendation We are maintaining our SPECULATIVE BUY rating and adjusting our one-year target price from C$2.15 to C$2.00. While timelines have and continue to severely test investor patience, the core tenets of our investment thesis remain unchanged: (1) technology platform is game-changing and applicable across multiple products and end-markets; (2) business model is excellent (very healthy, high-margin recurring revenue from captive consumable sales based on the in-use installed base); (3) cash balance is sufficient to fund recent burn rate into 2015; (4) U.S. clearance is still a matter of when and not if, in our opinion; and (5) our view that TSO3 should be an acquisition target following a successful FDA outcome appears now to be formally shared by the Board of Directors. The overwhelming risk continues to be timing, in our view. Valuation Our C$2.00 target price is supported by our DCF analysis (20% discount rate). We use the expected economic splits under the old 3M agreement even though TSO3 currently retains all of the potential value. Either way, the company's business model is a potential cash cow as the installed base builds, thanks to low-capital intensity and a high-margin consumables business. U.S. regulatory approval is required to unlock this value.