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All is not lost, don’t despair - I expect Sosandar and Woodford to spring back to life

By Cynical Bear | Sunday 1 April 2018

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.

As today is the day to celebrate resurrection, I thought it fitting to comment on a couple of stocks, namely Sosandar (SOS) and Woodford Patient Capital Trust (WPCT). Despite a difficult first quarter for the pair of them, I expect them to laugh death in the face and crack on from here bigger and better than ever.

Perhaps first, I should apologise to Paul Scott (and Tom) for my rather hysterical criticism of Sosandar following the RTO last November (HERE) as re-reading the article, it seems slightly over the top. I appreciate the market seems to have agreed with me so far with the share price dropping down to 12.25p from the RTO price of 15.1p, but I’m putting that down to pure short-term luck as the omens look good for the business.

Results for Sosandar came out on Thursday morning showing revenues of £861,000 for the nine months to 31 December 2017 and an operating loss of £2.1 million. The revenues were as expected bearing in mind the expectation-beating trading updates and should be applauded. The losses seemed a bit on the high side but with over £5 million of cash in the bank there is still plenty of time for the two founders to make this a success.

Imagine too what the business will be able to do once it develops a digital presence and one can find Sosandar’s website when one searches to buy a dress. I accept that it may have to spend a bit more time on marketing to do so and perhaps may need a bit more inventory in stock but that aside, it still feels like an enormous opportunity; one just has to look at Boohoo and ASOS as examples of what success could look like.

Lastly on this topic, I note a couple of comments online about a lack of a “moat” or rather spiteful comments about the potential inexperience of the founders and I think that’s just petty and am confident that Ali and Julie will be able to pull this off regardless of any business school-type theoretical nonsense about how one builds a successful business.

For WPCT, it has been a challenging time, not helped presumably by my incessant banging on about certain aspects of the ever riskier portfolio. Although the NAV has dropped further since the start of the year and the unquoted element of the portfolio continues to increase, the future looks brighter.

Of course, you may be wondering what has brought on this change of tack and it is largely because I keep on reading insightful comments from the great and the good at Hargreaves Lansdown who repeat, quite sagely, a phrase along the lines of “a great manager doesn’t become useless overnight”. Now, although any England football fan may wonder about the merits of that statement, I think there is a grain of truth in it when one is talking about fund managers. Clearly, one has to wonder about the definition of “overnight” as the Equity Income Fund will be four years old this summer and WPCT is just about three years old itself but I’m sure Dampier and his fellow HL troops will be proved right when we look back from our own deathbeds in around 25 years’ time.

Over twenty-five years at Invesco, Woodford had an incredible run, turning an investment of £1,000 into £23,000 and although some snide commentators are making the point that he seems to be trying to take it back down to £1,000, that really doesn’t stack up mathematically. I appreciate that now Mr Woodford is investing a lot in early-stage tech and biotech stocks rather than the large-cap tobacco stocks with which he made his name but that’s not really that relevant when one is talking about a ‘star fund manager’.

Love him or hate him, I think Woodford is at his nadir right now and I wouldn’t be surprised to see WPCT hit its cumulative 10% target within the next year which would need about a 75% return in the next 12 months – a great result I’m sure you would agree and if anyone can, Woodford can.

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