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Big Sofa - 2 heavy hitters join, share price recovery continues ( and will accelerate)

By HotStockRockets | Wednesday 12 July 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.


The distracting noise and untruthful commentary surrounding the results from Big Sofa (BST) a couple of weeks ago has died down and the shares have started a re-rate - they are now 25p-26.5p and if you can get any stock at all at 25p or better you should do so. We continue to see a minimum price target of 50p + to sell. Today we have news of two heavy hitters coming on board.

Big Sofa has appointed former Unilever plc director, Ralph Kugler, and market research expert Simon Chadwick, as strategic advisers to its board. Kugler is currently Chairman of Cognita Schools, and of Headbox, and is Board Director at Keter Group. He is also Chairman of the International Advisory Board of Leeds University Business School. He spent over 25 years at Unilever plc, most recently as Executive Director on the Main Board, and Global President of Home and Personal Care. He was previously President of large regional Unilever businesses including Latin America and Europe. He has also been Non-executive Director of InterContinental Hotels Group plc and Advisor on the Board of Mars, Incorporated.

Simon Chadwick has more than 40 years' experience in the market research industry and is currently Managing Partner of Cambiar, which he founded in 2004 to provide strategic assistance to market research companies as they confront rapid and fundamental change in the industry. Prior to this, Simon was CEO of eight market research companies around the world, ranging from start-ups to the multinational NOP World, which was sold to GfK in 2005. Simon is also Chairman of the Insights Association and Editor-in-Chief of Research World, as well as a being a Fellow of the Market Research Society.

In other words both men have reputations to lose so would not hook up with Big Sofa for a few quid unless they felt very confident indeed about where it was going. We share that confidence and again remind you of the maths which is compelling.

As per prior updates:

"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."

Ends

If you can get any stock at 25p or less do so, Our initial target to sell is 50p+ but as indicated above that may be far too low. The risks are very much on the upside.

This article first appeared on HotStockRockets - to catch the next red hot share tip from the HotStockRockets team out shortly for just £5 click HERE


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