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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.
When Sosandar (SOS) listed on AIM at 15p late last year, the forecast was that sales in the year to March 31 would be £1 million. Now we learn that they were £1.34 million. How many companies beat forecasts by that much in their IPO year? This is a special company as anyone who watched the two birds who run it HERE will know. This is not just about sales. It gets better for we loyal shareholders...
Like for likes in the second half were 268%, with March revenues being the best month ever. We are told that "substantial momentum has continued into the new financial year." In other words sales continue to surge. April was 32% ahead of March. May will be streets ahead of April...
What is driving this? The cash from the IPO is funding new marketing campaigns using direct mail , facebook, instagram, the works. Facebook and Instagram followings have increased by 181% and 888% respectively for what this is worth. The company has also expanded its product range and increased the quantity of stock ordered in commercially proven product lines.
But this is not only about sales. The economies of scale Sosandar increasingly enjoys and the fact that it discounts less and less has seen the gross margin for last year jump from 37.8% to 49.3% and clearly it will be materially higher again this year. Critically we are also told that the level of returns - a major concern flagged by the bears - is falling:
"Returns levels are already nearing industry average despite being an early stage business. While the business continues with high customer acquisition it is anticipated that returns will remain around this level, but longer term efficiencies will be seen as repeat order rates continue to grow and people become used to sizing."
That phrase "as repeat order rates continue to grow" is critical. Folks are coming back to Sosandar and with larger basket sizes. That is the real key to growing this business rapidly. But Sosandar also need to continue to attract new punters and on that front we are told:
"The cost of acquiring customers has shown improvement and halved over the last six months. This has been achieved through cost reductions and response rate improvements driven by increased data analytics which has helped to better target new customers. The up front investment in customer acquisition is also building the customer database and growing the level of repeat orders which combined with the cost of acquisition improvements have begun driving bottom line efficiencies."
So what about forecasts - remember that the company has stacks of cash having raised £7.5 million on the IPO. For the year to March 31 2019 the house broker was forecasting £3 million sales we were looking for £4 million. We think that might be too low but will wait a while before upping forecasts, the house must surely up its forecasts now. Next year the house broker was looking for £5 million we were looking for £6.5 million + and way into seven figure profitability.
At 16.75p the market cap is £18 million. Once profitable, online retailers can easily trade on PEs of 50, 60 or 70 and next year this company will be delivering a PTP of well over £1 million and a multiple of that the year after.
The stance is STRONG BUY at up to 21p with a 1 year target to sell of 35p but if this beats forecasts as we expect that target will be way too low.
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