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Big Sofa Technologies – I have not changed my view, still cynical, still a bear

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.

Just in case anyone thought I was getting less cynical with age following my earlier piece, I thought I would also update my thoughts on Big Sofa Technologies (BST) following all the recent news. In short, I remain as bearish as ever and think a cash crunch will be soon upon us.

There have been a number of pieces of news since I last commented at the start of June all of which confirm my concerns that growth is proving hard to come by and that cash will be running out. The first news that worried me was the seemingly innocuous update about the IPSOS related party disclosure on 18 June which provided a block waiver on deals with IPSOS until revenues reached £500,000 from IPSOS in aggregate.

That seemed a very low number for the potentially key partner. Big Sofa needs to increase revenues up towards £10 million as soon as possible and I was expecting / hoping that a significant chunk of revenue would come via that IPSOS relationship but that is clearly not happening to-date for whatever reason. In addition, Tuesday’s announcement seems to indicate that revenues so far this year from IPSOS are around £100,000 which is low. 

Secondly, I thought the AGM statement was weak. It stated:

“In the first half of 2018, our order book of work commissioned reached nearly £1 million, which represents a 91% increase on the same period last year.” 

First, the “order book of work commissioned” isn’t necessarily the same as revenues. Revenues in the second half of 2017 were over £800,000 and my interpretation of that AGM wording is that revenues in the first half of 2018 are not going to be very different from that number. The recent announcements relating to the three products it is delivering don’t provide any bigger numbers either or any encouragement about the future.

This lack of growth is the key differentiating factor between my two articles today; whereas Sosandar is racking up 73% growth quarter-on-quarter, Big Sofa looks flat half-on-half. More worryingly here is the cash position; adding the IPSOS funds and deducting the debt repayment, I estimate cash available from the start of the year to be about £2.8 million, but I would anticipate that only being around the £1 million mark at end-June, depending on how much the creditors are being squeezed, on the basis of the cash burn in H2 2017.

I don’t see how that money is going to see them through to cashflow break-even, not that Big Sofa appears to be particularly close to that landmark in any event. In fact, I believe that cash could be very tight in my view by the time interims are released towards the end of September.

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