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By Nigel Somerville | Wednesday 11 July 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.
AIM-listed Sosandar (SOS), my tip from this year’s UK Investor Show, had already performed very well but this morning the full year results to March were released. It is always a good sign when companies publish results ahead of the deadline and Sosandar could have waited to the end of September. So it was with increased optimism that I read through the report, but will it be enough for me to raise my stance on the shares and flip flop again?
We already knew that sales were growing strongly, and from a very low base so that a loss for the year was a certainty. In a sense, then, the actual numbers are a bit of an irrelevance. What I want to know is how near profitability the company is, and how much cash is left so that I can slap Cynical Bear down when he lobs his when’s the placing grenade in my direction.
On the cash score, we learn that Sosandar ended March with £4.6 million of cash. Looking further down the report to the balance sheet, we see £4.7 million of net current assets. That all looks very sound. Bearing in mind it raised £5.3 million in November, and had £0.3 million last March, it doesn’t look like it’ll be running out of cash soon. Pleasingly, the full accounts are already released (HERE) and the auditor’s report is clean. That suggests that my prediction of profitability by March 2019 is sound enough. Good news.
So are sales still growing madly?
We are told that the first quarter to June saw revenues up by 73%. We already knew that April was 30-odd % up on March, so this number suggests that 30% per month growth was not sustained. I can’t say I’m surprised, it was surely too high! But as pointed out by me HERE, historical growth had been around 11% per month (still pretty good!) but has quite clearly accelerated as at the end of Q1. I make it about 20% per month. Annualise that and it suggests year-on-year growth of around 900%.
My guess was that Sosandar needs sales to hit around £7.5 million to reach plc break-even. Since then a new NED has joined the board so perhaps it needs £8 million of sales. In the year to March 2018 it recorded sales of £1.35 million. So in a year we could be looking at a number near to £12 million.
Thus my prediction is that Sosandar will reach profitability well before the current year end…..if the growth is maintained. When that is achieved, people might read across numbers from other firms in the same (or similar) space.
That brings me to Asos (ASC) – the company which I bought lots of and thought I was a genius for offloading at around 10p. Asos is on a historical PE of around 83 (which I think is ludicrous, but that is an aside). If Sosandar knocks out £12 million of sales it might make perhaps a couple of million quid? Stand that by Sosandar’s (increased) market cap of £25 million and the PE would sit at just 12.5. I think we can all see the potential. There are ifs and buts as to how long the sales can go on increasing at this rate and on there being no boardroom errors. On the other hand, a PE of – say – 25 might be seen as very modest and that suggests the shares could easily double from here.
But I made Sosandar a buy at just 13p some two and a half months ago (so you’ve had plenty of time to pile them up!) and they are now up over 23p. My previous target was 25p to sell some and I am going to stick with that. The share price may have flip-flopped in between times, but I have actually been consistent (if consistently a target for you-know-who!). But when I say “some” I don’t mean all of them at all, I mean perhaps around 25%. Doing that will de-risk the investment heavily and leave plenty on the table to hope for much larger gains in the medium term.
If we get to 25p (and I expect that imminently), I shall be enjoying my summer holidays that little bit more as a result – but I shall be looking to a number more like 40p or 50p before I want to take another slice of profit.
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