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By HotStockRockets | Friday 13 July 2018
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.
How many companies list on AIM and then provide timely trading statements, upgrade their advisers, get full year numbers out early and beat forecasts? Can you name any? Well here is one: Sosandar (SOS)...
The adviser upgrade first. Out go Nomad Cairn and broker Turner Pope and in comes Shore Capital to do both roles. That is like transferring from division two sides to a Championship team. It is an upgrade and there were a raft of Nomad/brokers pitching for this account. This upgrade will see Sosandar get in front of institutional investors and it does not take many of them to start buying for a serious re-rate to happen. That is good news for we loyal shareholders.
Now to the results for the year to March 31 2018. Analysts had forecast sales of £1 million at IPO. We thought that was light and sales came in at £1.35 million. The loss, excluding RTO costs, of £3.1 million was as expected. The all important number is cash which was £4.6 million at the end of March with net current assets at £4.7 million. So there is no need at all for a placing.
That is because the gross margin is now up to 49% (and rising as return levels fall as the customer base gets more used to how the company works) and sales continue to race ahead. We discover today that Q1 to June 30 sales were 73% ahead of the final quarter of last year. And that was achieved despite a 14% reduction in the cost of acquiring new customers. A massive increase in repeat business is a real sign that this is sustainable – and there was also a 97% increase in the number of new customers acquired in Q1.
On that basis we think that the risks to our current year forecasts of £4 million in sales are now very much on the upside and thus we lift the forecast to £4.5 million and as for next year, forget £6.5 million we are now looking for £7.5 million. Assuming a further uplift in the gross margin to the mid fifties then, ceteris paribus, Sosandar will deliver a pre-tax loss of £600,000 this year (and critically will be profitable by Q3, or Q4 at the latest) and next year will deliver a pre and post tax profit of up to £1 million. Critically, that indicates that even at the low point it will be sitting on a fat cushion of cash. In the year to March 2021 (the year after next) then one could start to talk about profits of £4-5 million. Clearly you both time and risk weight such a forecast but that is the potential.
So what are the shares worth? In this space ratings of even far more mature businesses are very high, frankly anyone paying 83 times historic earnings for ASOS (ASC) is tonto. At 24.5-25p Sosandar is valued at a mere £26 million. On a forward PE of 15 that would give you a target in 20 months time of perhaps £75 million or 73p per share.
That is the excitement. As such our 35p target to sell looks boring and conservative. But pro tem we stick with it. At 25p offer we are well up on this share tip so the stance is HOLD but anyone selling is barking.
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