By Cynical Bear | Sunday 2 July 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.
Continuing the sleep-related theme, I wanted to take a look at Snoozebox (ZZZ) that rose from its slumber on Thursday following some developments and the release of its year-end results, although it looks to have dropped off again by the close on Friday. I wonder whether there is a turnaround play here.
Snoozebox provides temporary accommodation at events and also provides semi-permanent rooms too. It came to the market in May 2012 raising £12 million at 40p when it was not a lot more than a good idea. Well, unfortunately, it’s an idea that hasn’t played out well in practice and although the share price quickly rose to 75p, Steve Moore picked up on its difficulties in mid-2013 (HERE) after a rescue placing at 24p amid a management change.
Since then, the decline in the share price has been pretty steady. The results for the year to 31 December 2016 came out on Thursday showing revenue of £2.4 million, a loss of £8.9 million and negative retained earnings of over £46 million. This tells its own tale and a current share price of 0.325p and market value of £1 million completes that story.
However, the share price did jump as much as 50% on Thursday following the announcement before dropping back down again on Friday and I wondered whether that was merely a dead cat bounce or whether there was an opportunity here.
The business has debt issues with current net debt of £6.6 million and with revenues at such a low level, one has to wonder whether there is any potential shareholder value to be had here but there were a few things from Thursday’s announcement to give me encouragement.
First, the primary lender appears to be supportive and has agreed to an interest and capital repayment holiday until April 2018 which is a helpful start.
Secondly, I liked how much detail was in the report from a strategic side of things. It was a clear statement of what has gone wrong and how the current management is trying to put it right.
Thirdly, the strategic review and restructuring appear to be having some benefits. The central costs have been vastly reduced to around £100,000 a month and there appears to be a greater focus on ensuring that the business being taken on is profitable.
Nevertheless, the performance for the four months to 30 April 2017 still led to a loss of 0.4 million and the cash balance is down to £1.9 million. Due to the repayment holiday, the business should comfortably have sufficient funds for the period through to the end of that repayment holiday in April 2018 and this gives Snoozebox a chance to see if it can generate sufficient new business in the events or semi-permanent space to enable it to start to make inroads into that debt balance.
The way ahead is not straightforward by any means and there still remains a huge risk that the debt here ends up overwhelming the business but, personally, I like the approach being taken by the Executive Chairman and hope it’s not too late for the business.
Not entirely sure what’s come over me but at a valuation of £1 million, I’m almost tempted to have a little punt at the current price.
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