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Toople – Surprise, surprise, the Breith comeback has been a flop…..and it’s still a sell

By Cynical Bear | Sunday 12 February 2017


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


In May 2016, I commented on the forthcoming IPO of a David Breith-connected business, Toople, which joined the Sub-Standard List raising £2 million at 8p (see HERE). It currently trades at 3.25p, a disappointing 60% drop in a mere eight months, but I thought I’d take a closer look at its recent maiden full year results to assess where it goes from here.

Its results came out on 31 January showing total revenue of £957,000 but only £77,000 gross profit, in part because the bulk of the revenue in the year to 30 September 2016 was still from the lower margin wholesale business.

The low gross profit led to an inevitable hefty loss for the year of £1.7 million.

I acknowledge that it’s early days for this business as it will all depend on how many, and how quickly, it can sign up SME customers to its telecom services and it states that it is now getting 200 new orders a month although I have no great sense of what that means for revenues, profits or cash, but it will need to have a pretty quick effect as looking at the balance sheet, the business is looking a bit tight on cash already.

Clearly, when a business comes to market, it should have cash for at least 12 months but, funnily enough, it doesn’t always work out that way.

As at the year end of 30 September, the business had cash of £744,000, so I estimate that in the four and half months from IPO in mid-May, ignoring one-off IPO costs, it burnt through approximately £745,000. We’re now a further four and a half months on and although I would trust that the more profitable lines of the business are growing, there has also been further investment with the appointment of a new COO and a recent telephony service launch, so it must be getting a bit low on funds.

In these situations, I always find the Going Concern notes in the accounts interesting and here is no different. The accounts state:

“Having undertaken a detailed budgeting exercise covering a period of at least 12 months from the date of approval of the financial statements, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and therefore continue to adopt the going concern basis of accounting in preparing the annual financial statements.

The going concern basis of accounting has been applied based on management's consideration of financial projections and business plan for the business, these include a number of forward looking assumptions about the future growth in the customer base and a reduction in costs following the successful website development, digital marketing, and Merlin integration with its associated consultants and agencies.”

Hmmm, the Directors reckon they’ve got adequate resources for 12 months to 31 January 2018. Really? How much cash does the business have today? My view is that the business will need to raise funds within six months and probably sooner.

Let’s see who’s right. A £50 donation to a charity of the CEO’s choice if I’m wrong and Toople does in fact survive the full 12 months on its current resources.

One bit of good news for the business that I should mention is that David Breith is no longer directly involved in the operations as his consultancy contract came to an end last November. Can’t wait to see where he turns up next.

Turning to valuation - at 3.25p the business is valued at only £3.25 million, so Toople wouldn’t actually need to show too much traction in generating higher margin SME business to justify such a value, but for me the jury is still out on that issue for now and with more funds needed (in my view) I see this still going lower in the short-term.


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