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By Nigel Somerville, the Deputy Sheriff of AIM | Thursday 26 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.
This week all of the team will tip 1 stock - long or short - which presented at UK Investor on Saturday or was mentioned in a presentation. For paying customers only, sixth up it is Nigel Somerville.
I commented HERE on my visits to some of the stands at the runaway success that was the UKI show last weekend. Sadly I didn’t get around my full shopping list so that let Minoan (MIN) and Skinbiotherapeutics (SBTX) off the hook. But I did have a good chat with AIM nearly-newbie Sosandar (SOS).
The company is essentially an online retailer of fashion aimed at women who are a bit beyond having reached adulthood – an area the company believes has been overlooked in the market. It is co-led by Julie Lavington and Ali Hall who have between them over 35 years’ experience in fashion and media industries, and have design experience with major retails. All good, but the company’s stock has not exactly set the world on fire – the shares currently sit below the IPO price, albeit after a reasonable rise from sub-12p when I wrote about it to 13p (mid) now. That compares with an IPO price of 15.1p
Chatting to them I was almost immediately offered a mea culpa with regard to its recent trading statement in terms of lack of hard financial metrics and the company was keen to express a desire to do better on that front in future. I got the impression that there was a bit of naivety with regard to telling the market what was going on – and even whilst talking to them there was plenty of discussion as to what they could tell me.
I wanted numbers – proper numbers. EBITDA is going the right way, I was told. But, of course, EBITDA is bullshit earnings: I don’t care about EBITDA, I want bottom line profit/loss numbers, and I want to know the cash position. Apparently EBITDA is the same as the bottom line as there is no debt (although I’ll wait to see about depreciation and amortisation!). If that is the case, why offer EBITDA and not the bottom line?
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 - and hasn’t yet - dwindled 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. Very frustrating – I’m sure they do know the answer really.
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. Even in the trading statement of March we were told that trading was exceeding management expectations. So it sounds as though the team needs to learn how to communicate with the stock market, but business is going well. 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. 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. If it works the market capitalisation of just £13.9 million will be a joke. If it does not, well you will lose. But I fancy that the upside is big enough to mitigate the risk.
I also remember the early days of ASOS with…er….regret. From memory, I bought a stack of it at around 5p and sold at 10p thinking I was Warren Buffett on steroids. ASOS is now £60! That shows you what can happen in this industry. Although it is far more mature than it was when ASOS listed, and Sosandar is not ASOS, the general point is that if Sosandar gets it right it will be a heck of a lot higher than 13.5p.
So I’m going to make this my pick from the show. It is highly speculative and there is plenty that could go wrong. But there is also the off-chance that it really takes off, and at 13.5p offer it certainly looks worthy of a punt. It might also be noted that Nigel Wray is in too with a 4.6% holding, and I gather that both Paul Scott and Tom Winnifrith are also in (yes, they agree!!). With the IPO at 15.1p (which added £5 million to the balance sheet) 13.5p looks a good opportunity to me.
No guarantees, though!
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