AIM-listed Sosandar (SOS) has announced a full year trading update. On the surface, a rise in revenues to £4.4 million, up 228%, looks good but the statement is a bit vague and I fear that growth has slowed down somewhat, though it is still very impressive. Sales for Q1 came in at £0.84 million. They raced ahead to £1 million during Q2, which included the dead month of August, and then ratcheted forward to £1.6 million in Q3 to bring up a total of £3.44 million. So FY sales of £4.4 million may look impressive, but in fact that means only £1 million of sale in Q4. In the same three months last year, Sosandar rolled in around half of that – not quite the 228% growth headlined. So that all looks like a bit of a Q4 disappointment – although 100% growth year-on-year is still extremely impressive. But the growth does seem to have slowed from Q3 – and, indeed, so did sales. FY revenues of £4.4 million compare well to broker Shore Capital’s forecast of £3.9 million and the company tells us that this was “comfortably in line with market expectations”. Well, in view of the above, I was hoping for more!...
Meanwhile we are told that the loss for the year is expected to be in line with market expectations – which doesn’t read quite as confidently as comfortably in line so whilst Sosandar actually beat sales forecasts (which I always said were light), it looks as though the full year loss will indeed only be in line. Why can’t the company just say what those expectations were, instead of relying broker notes which are not necessarily available to the public? On the cash front, we are told that net cash was £3.64 million. I do wish companies would indicate what net current assets are – it is surely more relevant. But for what it is worth, cash at the end of Q3 sat at £4.6 million so Sosandar appears to have burnt its way through another million during Q4 – as per Q3, and about the same rate as H1. I would have hoped by now that sales would have increased enough to eat into the marketing spend. On the face of it, it seems not. But the trading statement also tells of a “significant investment” in stock of £260,000 ready for peak demand in Q1 of the new year so perhaps the real cashburn during Q4 was more like £750,000. That might suggest the company has enough cash to last until next summer (ie 2020) at the current cashburn rate – but that should improve as sales grow further, and it will have to bear down on its cashburn in order to prevent Cynical Bear (yet) again shouting when’s the placing. At the UK Investor Show the company was confident it had enough cash to get through to cashflow breakeven. Well, in the light of this morning’s numbers, it has some work to do but I remain optimistic – if not so outlandinshly as last year.
It does look to me as though Sosandar has had a disappointing Q4 – it is a young business and I’m sure there will be more blips and surprises along the way. The question now is whether it was a blip or whether something more worrying is affecting the company – such as the general retail slowdown. On the other hand, it does appear that cashburn is starting to slow and although sales growth slowed in Q4 it is still growing fast. “Market expectations” are for the company to reach a profit in its next (ie 2020/21) financial year and I would hope to see cashburn reduce fairly dramatically over this year – or I will be shouting the same things as Cynical Bear! So are the shares expensive or cheap? I guess that depends on your perspective. The share price has recovered a bit, putting Sosandar on a market cap of around £33 million – which might seem a tad expensive for a loss-making, cash-burning company with around £3.5 million left. But whilst sales are vanity, sales growth appears – even on Q4 numbers – strong and the cashburn is reducing. If both things continue, then the company will start to generate cash rather than burn it and some people are prepared to pay for that.
From my perspective, I said buy at up to 20p and stuck rigidly to that – despite a spot of rib-tickling in the flip-flop department. I top-sliced at 27p and again at 38.4p so anyone who followed my buy tip at just 13p will have done very well. The shares I have left are in for free and I have a cash profit notched up already. Whilst I want more cash, there is still plenty to suggest to me that with the right management and a following wind the shares will go much higher. At the moment they are expensive, so Tom Winnifrith was right to sell out at 34p. But I feel vindicated too - even if I was too optimistic - having cashed in twice. It is just that I wanted a few left over on the punt that Sosandar really makes it big. That could still happen. So my call – with my free shares – is to be very boring and do nothing. If we get above 40p I’ll spring into action and sell a few more.
Filed under: Sosandar, Darren Winters, Neil Woodford, Allied Minds, Tesco, Walker Greenbank, Odd One Out
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