After taking advice Cello has issued a statement re the HMRC VAT issue. Sadly the matter remains unresolved and a frustration. However the stock has overreacted in our view and with the business performance strong (see recent results) we see this as an opportunity to Buy stock. The background is that Cello made an offer to HMRC in December to settle matters and provided additional information in January. HMRC only responded recently and Cello received this on afternoon of 21 March. The response rejects the offer, is unconstructive and fails to confirm how the VAT should be calculated and what the bill should be. We struggle to see how the bill could be stretched to double the provision (VAT element of £2.4m) and have already very conservatively assumed in our cash flow forecasts that the current £3.2m provision (including penalties and interest) is paid without recovery from clients (who are ultimately liable and who Cello is indemnified against). We still believe our approach to be conservative and think that even in the most extreme circumstances the underlying bill could not exceed £5m and this would be before recoveries from clients. HMRC appears guilty of creating uncertainty that is affecting operators in the charities sector (this issue relates to the ambiguity of which services carry a zero VAT rating for charities). The shares fell 8.5p implying an incremental loss of £7.2m of value. While the sentiment may not help the reaction is overcooked. Our 100p TP already reflects a sentiment discount for VAT. Buy.