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Sosandar – FY Numbers and surely a misleading headline

By Nigel Somerville, the Deputy Sheriff of AIM | Tuesday 20 July 2021

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.

AIM-listed online ladies fashionwear purveyor Sosandar (SOS) posted its full year numbers to March this morning,  and gave what looks to me to have been a highly misleading update on the recently completed Q1, offering up a headline which surely stands no scrutiny at all.

The headline was that Q1 revenue was up by 256% year-on-year – but Q1 last year was at the beginning of the Covid lockdown and revenues were hit hard. As discussed HERE last year’s Q1 revenues were up by 54% year-on-year on what the company admitted was its weakest quarter and more to the point, previous Q4 revenues had been up by 203%. So the fact that now we are told Q1 this time was 256% up year-on-year is, in my view, highly misleading.

That sort of thing does not inspire confidence in what I am told – especially when it seems to be the lead story – and we soon learn that full year revenues were up by only 35% to £12.2 million. Now 35% growth is pretty good, but it most certainly is not 256%!

We are also told that EBITDA losses (bullshit losses) sat at £2.92 million but the bottom line figure was a loss of £3.1million – not disastrously different, but still 6% worse. Compared to the previous year, this meant that losses have reduced by £4.7 million from £7.8 million, but there is more to that too: Gross Profit was up by 33% – ie by less that the increased revenue  which is surely the wrong way around. Meanwhile administrative expenses year just ended fell by £2.9 million: was that as a result of chopping advertising? If so, are the “customer acquisition” taps now turned fully back on, and if so, how much will administrative expenses rise by this year?

Don’t get me wrong, the full-year numbers were a good effort in the face of an almighty storm but there is far too much comparing of apples with pears and my eye is drawn heavily to the gross profit increase being lower than the increase in revenues: my fear is that re remain a very long way from clocking up a bottom-line profit – especially if advertising spend is on the way back up.

My concerns are perhaps racked up by the fact that the company recently raised £5.77 million in a post-period placing despite already having £3.9 million sat in the bank and almost £5 million in net current assets, figures which had hardly changed over the previous 9 months. Why did Sosandar raise another £5 million, if it was not needed? The answer is that it is needed – and that means more hefty losses going forwards. The admission that cash was at £9.1 million at the end of June suggests that cashburn is indeed on the up, for that is half a million lower than full-year cash plus the placing.

At the current 25p per share the market capitalisation now sits at around £55 million. Knock off cash of £9 million and you are effectively paying £46 million for a company which is still racking up losses. But there is an immediate stash of director options handing out another £2 million (at the current share price) for free as and when they are taken (they are already vested), more if and when the company achieves a profit and yet more to a total of £5.4 million worth at the current share price in total from the recent Long-Term Incentive Plan, and a further £0.8 million worth from another scheme at the current share price.

I’d love to be able to buy back in to Sosandar’s story, but on the above I just can’t – and certainly not at the current share price. 

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