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Sosandar – House Broker Shore slaps on a price target of 50p, but is it too low?

By Nigel Somerville | Thursday 30 August 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.

Shore Capital is the recently appointed house broker (and Nomad) to AIM-listed online ladies wear outfit Sosandar (SOS) and is thus hardly going to publish a sell note. Last night it released a broker note which has dropped into my inbox, and it has slapped a “present fair value” price of 50p on the shares. Normally one might treat such notes with a bit of caution for over-egging the pudding – after all, this broker note tells us that it is a marketing communication and as such I would expect the best case scenario to be put. But in this case I wonder about that. Here is why...

Shore tells us that it is forecasting revenues for the current year to come in at £3.9 million – seemingly a very impressive uplift on the £1.34 million in the year to March 2018. But Sosandar has told us already that:

  • Revenues for the 9 months to December 2017 were £0.86 million (see RNS 29 March 2018)
  • Full year revenues for 12 months to 31 March 2018 were £1.34 million (see RNS of 16 May 2018)

Therefore, Q4 of the financial year 2017/18 revenues must have been £0.48 million. But the FY18 results (to 31 March 2018) also offered us that Q1 2018/19 revenues (so 1/4/18 – 30/6/18) were up 73% on Q4 2017/18. So Q1 revenues must have come in at £0.83 million.

If you multiply that by four, one might forecast full year revenues of £3.32 million if you believe Sosandar will clock up zero growth for the rest of the year – which I suggest might be tad unlikely. Yet house broker Shore has only forecast full year revenues of £3.9 million. That works out, if split evenly across Qs2-4, as being £1.02 million per quarter, growth of just 23% on Q1 and then flat-lining for the rest of the year. That forecast might seem a little harsh, given the 73% Q-on-Q growth shown at Q1! If Shore can derive a 50p target based on that, I wonder what a slightly more optimistic growth forecast might produce.

On the other hand, I'm not exactly up on ladies fashion (or any fashion at all!) A kind soul has suggested that the key here is seasonality. Q1 is always strong, as is Q4. Q2, however, covers July-September and the first two months of that tend to be slower as customers have bought in June for their summer holidays - and then disappear, to return at the end of August and September for their Autumn wardrobe. Q3 normally sees strong trading in October and November as customers buy for Christmas and the winter, but December is normally poor.

So Shore seems to be assuming a pretty poor summer and December. We shall see - Q2 for this year versus Q2 last year will offer some idea, although perhaps a better comparison will be Q4 as we will be comparing like with like (ie both will be post the listing funding). We shall see: I gather that Sosandar is "very comfortable" with the forecasts, which might be decoded as meaning easy to beat, but we will have to wait for that.

Self-interest note: this all might suggest that I may be to be able to offload more shares (as I intend) above 50p, which suits me just fine.

Notwithstanding that, you can read the full 32-pages of finest academia in the world by clicking HERE.

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