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Snoozebox Holdings – when will the lender pull the plug?

By Tom Winnifrith | Thursday 10 August 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.

Snoozebox(ZZZ) interim results for the six months ended 30 June 2017 out yesterday showed a reduced loss of £1,006,000 down from £2,126,000 in the prior period. Worryingly for long suffering shareholders, the contribution to overheads was only £176,000 down from £986,000. 

This was insufficient to cover administrative expense of £910,000 notwithstanding the massive reduction in these costs compared to the prior period. Unless Snoozebox can dramatically increase revenues, it looks destined to continue incurring losses as scope for further administrative expenses must now be restricted.

The net debt has increased by £1.2 million to £6.7 million and the deficit on shareholders’ funds increased from £2.6 million to £3.6 million.

The group highlight that “there is a material uncertainty which may cast significant doubt about the ability of the Group and Company to continue as a going concern, the Directors have concluded that there is a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future, a period of not less than twelve months from the date of this report, and that it is appropriate to continue to adopt the going concern basis in preparing these financial statements.”

Bulls of the stock highlight that the primary lender “remains supportive of the Directors' strategy and plans.” But what choice does that lender realistically have? If it pulls the plug it regains the assets that it has leased but these are specialized assets and Snoozebox is the expert in renting these assets out.

However, at some stage the leasor is likely to lose its patience and it is likely that shareholders will be wiped out as lenders enforce their security and hope that shorn of AIM listing costs Snoozebox can repay more of the lease commitments.

Sell whilst you can.

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