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By Nigel Somerville, the Deputy Sheriff of AIM | Monday 23 April 2018
Disclosure: I own shares in one or more of the stocks mentioned. 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.
I went with a shopping list of companies I wanted to speak to, and to find something which might prove a worthwhile investment – that, alongside chairing one session, a cameo appearance in another, a meeting with the Global Shorting Conspiracy and a bit of time on the ShareProphets stand. My marks out of ten were about 6 or 7 – I didn’t get to see all the companies I wanted to but I think I gleaned some useful information. And I have my tip – although it is not a widows and orphans pick!
First up came a chat with Ariana Resources (AAU). I have been recommending this for some time and I have a fair dollop of the stock myself, so please bear in mind I am talking my own book. The main question I wanted to pin down head honcho Kerim Sener on was the issue of whether we would see Ariana again rattling the tin. The message was that there is no need for cash: the Kiziltepe mine is flowing enough cash back to Ariana.
But what about drilling and exploration over at Salinbas, I wondered. The permit applications are in but it was pretty unclear whether the paperwork would be issued (assuming it is!) in time for works this year. So I guess that even if there is some spending to come there one might assume we are safe from a placing for now.
Meanwhile, I put my maths to Kerim (see HERE) and apart from the assumption that nothing goes wrong, I don’t feel a long way out. What it does mean is that there is significant upside on the numbers we have been given: underpromising and overdelivering is the order of the day. So if there is a problem, the production target will probably be met anyway.
My personal target it 2p a share (they are 1.35p bid – 1.5p offer) and I still rate the shares a buy. But at 2p I will be taking some cash off the table.
Second in line was Richard Poulden at Wishbone Gold (WSBN). This has looked an interesting play to me, but getting the projects up and running takes time – perhaps a bit longer than one might have hoped. But I gather that Black Sand is keeping its head above water and the new plant in Honduras is running well. It may only be a part-time operation (pending permits for more) but other plants have already been closed because this new one is so much more efficient.
So when will Wishbone turn cash positive? Well, it all depends on the speed of implementation and, well, that takes time. But Richard was in ebullient mood and I would imagine that things will look a bit different in a year or so. One to watch, for some. Others may want to take an early plunge. I have a holding here, but have been nervous of the finance package which is one of those not-so-nasty death spirals. When that was announced my instinct was to get out, but I didn’t. I wonder whether the signal for really piling in might be when that comes to an end. On balance, it looks like a business which has legs and will make money in the longer term, but I may be tempted to trim my holding a little in the shorter term – not because I think it is bad, but because I probably bought too much.
Big Sofa (BST) was next up for a grilling. Could they explain, in words of one syllable, what it is they actually do? I explained that there have been plenty of comments suggesting that nobody really gets it, could they help? The answer came back that they analyse video. Well, yes, but let’s get a bit further under the bonnet than that.
It was then that it got a bit more interesting. The feeling had long been that surveys out in the street were not returning accurate data – possibly because consumers themselves were not aware of their own behaviour.
They offered an example: paper towels. How often does the consumer use them, and under what circumstances? You could ask the question in street surveys – or Big Sofa can get a camera in the consumer’s home. At that point frequency of use, what for and so on is recorded and Big Sofa’s tech can strip out the data (so it is not a case of someone else watching and gathering the data). The surveys done so far seem to have gone down well and the deal with IPSOS (who invested directly into the company) appears to offer some confirmation that industry insiders get it.
So when will Big Sofa generate cash? The last time I had a chat on that score the answer was Q3 or Q4 this year. Now it is definitely Q4. So Big Sofa will report a loss for this year but it will, by year end, be making money. Good news.
How long will the cash last? They’ve got enough to see themselves through to cash generation – in other words the year end. After that the cash rolls in…except there are other areas they would like to get into which may require more funding. That may scare you off, but given that the company has not suffered from massive discounts with two previous rattlings of the tin I’m fairly relaxed about that. What is of greater interest is that if the company goes cashflow positive by year-end more-or-less from a standing start it gives a pretty good idea of the lead time to profitability with the next project.
Again, I hold the stock so I‘m talking my own book, but I’m happy to hold on for now.
Finally, I wandered over to the Sosandar (SOS) stand. This is a company whose shares have not exactly set the world on fire and they currently sit below the IPO price. Almost immediately I was offered a mea culpa with regard to its trading statement and the company was keen to express a desire to do better on that front. I got the impression that there was a bit of naivety with regard to telling the market what was going on – and there seemed to be some discussion as to what they could tell me.
I wanted numbers – proper numbers. EBITDA is going the right way, I was told. I said I don’t care about EBITDA, I want bottom line profit/loss numbers. Apparently they are the same (there is no debt, although I’ll wait to see about depreciation and amortisation!) so why not give the real numbers, then?! I suggested that it might want to give cash, payables and receivables when it publishes its year-end trading update (it is a small operation for now, so it surely can’t be that hard). I think they got the point that full numbers and early will go down well. It is, after all, not so far from being a start-up so nobody is expecting huge sales yet, just a progression – and signs that the cash won’t dwindle away.
So when will it turn cashflow positive? Ah well that depends on how much the company decides to spend on customer acquisition. So they haven’t decided! Try as I might, I couldn’t get numbers out of them as to when it reaches a cashflow positive position even if no cash is spent on customer acquisitions.
This may all sound wholly unsatisfactory, but then I learned that March saw a new record in sales and April looks set to beat that. There was a clear passion amongst the team and it sounds as though they are flat out.
On balance, I got the impression that this is a team which will learn how to communicate to the market, but there is quite some way to go on that score. On the other hand, customers are returning and business is picking up all the time. It looks as though the business is performing well, but communication is not. I’d rather have it that way round than the converse!
I don’t hold this stock as yet, but I fancy that there may be an opportunity to make some money here.
So what is my share tip? That will have to wait for another day this week and will be for paying subscribers only!
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