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Sosandar – I have changed my view, I am not a bear any more

By Cynical Bear | Thursday 12 July 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.

I started to soften my view on Sosandar (SOS) back in April having seen the founders at the UK Investor Show but thought I would formally update my position on this following yesterday’s results, as my name and “view” gets bandied around in connection with it. In summary, I am no longer a bear.

I made quite a loud bearish growl about this stock in my original piece back in November (HERE) when I was bearish for three principal reasons. First, it’s a competitive space; secondly, I had my doubts about the experience of the management team and the fact that they had limited equity; and third, I also had doubts about its slightly different marketing approach in which it uses PR type marketing much more than traditional e-commerce, digital marketing methods.

I still have some of those concerns to be honest; however, having followed the stock pretty closely over the last seven months, my thoughts have evolved in the following way.

First, and most importantly, the management. I have been impressed with how Ali Hall and Julie Lavington have handled themselves and how they come across. In the world of small cap AIM stocks in which most CEOs appear to me as if they have just come off a 24 hour drinking session with their broker, which may or may not be the case, Ali and Julie always appear to come across professionally and seem to have a plan.

With hindsight, I wonder whether their relatively low equity holdings came about due to their naivety with AIM and the RTO process as much as anything else as it feels a bit of a shame that the two of them will not end up with the bulk of the rewards if the business proves to be a success. Perhaps they were just desperate for the funding.

I still do think that the space is competitive as the numerous brochures that get sent to my wife each week prove; however, it is a decent sized market to go for. I continue to have some concerns too that the marketing strategy will need to evolve to be less Loose Women and celebrity focussed but perhaps I’m wrong there and there’s a successful hybrid approach.

The key point though is that I’m not going to argue with the growth.

The results for the year to 31 March 2018 are slightly irrelevant but the one figure that stood out to me in yesterday’s numbers was the 73% growth in revenues for Q1 2019. That is impressive and means that revenues for the three months to 30 June 2018 were well over £800,000. There is no information about the marketing spend to generate that, but it is a decent number and should be applauded and one could now expect that revenues for the year to 31 March 2019 could reach or exceed £5 million on that basis.

There is plenty of cash in the bank; however, I wouldn’t be surprised, or disappointed, if it looked to bolster resources towards the end of the year to give it every chance to exceed 100% annual growth rates in the medium term.

I’m not buying shares at the current price as following yesterday’s rise, its valuation is over £25 million and I’m not expert enough in the world of middle-aged women’s fashion to know if or when the growth might start to slow down, but I’m no longer bearish and can now happily sit on the sidelines and wish the management team well…..and Tom, Nigel Wray and Paul Scott too - who own a decent chunk of equity between them.

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