Wednesday 16 August 2017 The one stop source for free breaking news, expert analysis, and videos on AIM and LSE listed shares

Big Sofa – major US deal, Ipsos named, new forecasts – buy at up to 25p – 50p target is CONSERVATIVE! ( 120p plausible)

By HotStockRockets | Tuesday 13 June 2017

Disclosure: Financial Investigative Media Limited, which is not owned by Tom Winnifrith but by a trust for his dependants, owns shares in companies mentioned in this article. 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.

Big Sofa (BST), the provider of video analytics technology and services has announced that it t has been approved as a ‘Global Systems Partner’ to provide video research and technology services to one of the world’s largest consumer goods corporations, headquartered in the USA. Annoyingly we are not told who this is but it will leak. You may remember the big win with a market research firm?

That was announced a few months ago with the firm not named. We outed it as Ipsos and buried at the bottom of today's RNS is confirmation of that. We will try to “out” the US giant as soon as we can. But the fact that Ipsos is outed shows how these are real deals.

What does this actually mean? We were taken inside yesterday and had a major number crunching exercise. Historically Big Sofa has generated revenues from numerous small contracts worth £5,000, £10,000 or £15,000. that is great but it does not offer visibility. The strategy now is to secure major deals like Ipsos and today's deal which may take a few months to ramp up but will in due course generate revenues of £1 to £1.5 million each per annum. We now have two such deals.

We gather others are close to being concluded so that by the late Autumn there should be, at least 4 bedded down and onstream which means that a fixed overhead of just under £5 million per annum will be covered and the company will be profitable. Given that it raised £6. 1million last December cash will on that basis not be an issue. Yes the company will lose money in calendar 2017 but should end the year with at least £2.5 million in the kitty.

The joy here is operational gearing. Adding on a fifth or sixth contract would add very little to the cost base and indeed the internal plan is to build up to 12 such contracts by the end of calendar 2019.. So lets assume that each contract does grow to £1.25 million ( we are being cautious).. On that basis with – say 6 on stream for the whole of 2018 sales that year would be at least £7.5 million. Assuming some additional cost plus general inflation plus cost increases overall, that would imply a pre-tax ( and post tax given 2017 losses) profit of £1.5 million and year end cash of £4 million.

But in 2019 on, say 10 contracts, the sales number goes to £12.5 million ( and that could well be closer to £15 million) and profits to, at least £5 million. Even on a full tax charge that is earnings of £4 million ( and year end net cash of £8 million). Such a growth play would surely merit a PE of 15 + cash? That implies a market cap of £68 million which is c120p per share.

Okay we are not going to get there tomorrow. There is a time discount and a risk of non delivery but so far so good on that score and we are assured there is more to come over the summer. At some stage brokers will start to cover this stock and offer official forecasts and at some stage that will attract institutional buying. We are not there yet but at a £20 million market cap that would start to happen and we will get there sooner than you think.

At 23p the market cap is now £14 million. Before the city wakes up BUY greedily at up to 25p – our initial target to sell is 50p but that may well be far too cautious.

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