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By Tom Winnifrith | Wednesday 10 October 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.
Broker Shore Cap insisted that shares in Sosandar (SOS) were worth 50p. Thirsty Paul Scott gushed about how they were potentially worth far more and after such massive pumping the stock hit the mid forties at which point it was valued at around thirty times historic sales. Insanity. And then the shares started sliding, falling from 44p at the start of this month to 36p yesterday. That must have been enough to turn anyone to drink. Whatever could have been happening… oh yes…
Today there was a placing, raising £3 million – before expenses – at just 32p. We are told that the cash was to be used to “further drive the Company's development… The net proceeds of the Placing will be used to support the Company's ongoing growth plans for the business and the execution of its stated strategy. The Placing will also help satisfy institutional demand for the Company's Ordinary Shares.”
Hang on Henry.
a) The note from Shore, Thirsty Paul et al told us that the cash raised at IPO would be enough to drive sales through to a point where Sosandar was profitable and cash generative. Now I guess more cash is needed for marketing to drive sales even faster. Whatever.
b) If Institutions want the stock why not buy it in the market like the rest of us? Just because you went to Eton, had a brief gay fling with a chap now working in a broking house when you were at Footlights college Oxbridge and get paid a large amount to gamble with other folks money why do you get to be treated better than ordinary plebs? Once again oiks, ordinary investors, were cannon fodder. The Shore Cap ramp note was designed to get you paying silly prices in the market so that a discounted placing with City spivs could be got away.
The share price move ahead of the placement – forward selling? Insider dealing? Surely not. This is AIM. It is just one of those strange coincidences that seem to happen all the fecking time. Move along now Mr pleb, nothing to see here, those City chaps need to live don't you know? Have you any idea how much coke and hookers cost these days?
The placing is supported by a trading update. Sales in the half year to 30 September were up by 407% to £1.84 million. But the first half of last year was start up territory. So by my calculations H2 sales last time were c £970,000. So the sequential ramp up is not as great as the headline suggests. Okay gross margins were up to 55%.
Bottom line = the company should, probably, hit a FY sales forecast of £4million or a bit more but it will not shoot the lights out as some, including flip flop Nigel Somerville, had hoped for. And you can bet the ranch that it will report another full year chunky loss.
What the trading statement does not say is what the cash position had declined to at the half year. It was £4.26 million at the end of March, my guess is that it was well below £3 million at the half year. Did Sosandar really have enough cash to see it through to profitability, without this placing, as thirsty Paul and Shore Cap claimed? I do not know. That the trading statement does not reveal the cash position is not a good sign.
At 38p the market cap is now £44 million. Assuming net cash of c£5 million that values the business at 14 times SALES in the 12 months to 30 September and just under 10 times current year projected SALES. For a loss making business that is not a good risk reward trade.
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