In covering Sosandar (SOS), my prime concern is not to hurt the feelings of Britain’s top share blogger, thirsty Paul Scott, who filled his boots at the 17p IPO. Mr Scott repeatedly argued, normally via 3AM thirsty tweet rants, that my tipping the shares was holding them back and so when I advised readers to bank 100% gains at 34p (and did so myself as well) he argued this was awful advice but thought it good for the share price which he saw at 65p+. The stock is off again at 22p to sell so should we be thinking of horrifying thirsty Paul and buying back in?
First up, it is important to note that the risk reward trade off has changed somewhat. At IPO the company had £7 million cash and a market cap of £16 million so you were paying - 16 months ago - just £9 million for the business. By my sums cash is now c£4 million and the market cap £25 million. Has the value of the underlying business really gone up by almost 150% in 16 months? I am not sure that it has and so the risk/reward trade-off is just less attractive than it was. Secondly there are an awful lot of shareholders out there who may feel royally shafted. Shares in this company were pumped up to the high 40s by a combination of Scott’s ludicrous price targets and back of a four pack long-term forecasts and by a ramptastic broker note from Shore Cap. To be fair, I suppose that comrade Somerville of this parish could also be accused of excessive optimism. Folks buying in the secondary were promptly shafted by a 32p, £3 million, fund raise in October 2018. Now even those who took part in that placing will be feeling sore.
Natch, Sosandar said it wanted the cash to accelerate its growth. The grim reality is that without that fund raise, ceteris paribus, the company would by now have little more than a Bernie in the bank and would NOT be funded to profitability or indeed to Christmas. That was most certainly not what we were promised at the IPO nor was it in the broker forecasts made at the time. I sense that many shareholders would now look to sell into any strength or might just take it on the chin and sell at a loss now, feeling there are better investments elsewhere. I have always stated that the birds who run this business are a class act and I note how Nigel Somerville (who unlike the Thirsty one) has been wise enough to top slice, met them at UK Investor and came away impressed and convinced that trading was strong. But surely we can all accept that the retail climate is grim in a way none of us could have predicted (well I did) back in November 2017 at IPO. As such, the risks to forecasts have got to be on the downside.
In H1 of this year Sosandar spunked c£2 million. My guess is that the FY loss will be at least £3.5 million. For the current year, just started, I struggle to see the company making a profit although it might just do so in a small way in the year to March 31 2021. But that - given the macro headwinds - is not a given. Nor is it a given that there will not be another fundraise. And thus I am afraid that I will not be buying back in. At sub 15p I might be tempted but we are not there…yet.
Filed under: Sosandar, Tom Winnifrith Bearcast, Neil Woodford, WPCT, K3 Capital, Purplebricks, GVC
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