Turmoil continues at Snoozebox with the CEO announcing his resignation this morning. After the resignation of the Chairman in February, it now looks like shareholders have run out of patience with the current strategy. Do these shares hold any residual value?
The immediate catalyst for the resignation of the CEO appears to be the Board’s strategic review and the influence of Kestrel Partners.
Kestrel owns ~30% of Snoozebox, their Research head has had a seat on the Board for a while. After the resignation of the Chairman in February, he took on this role and was made an Executive today. We can assume that Kestrel has been leading the changes and that the strategic review isn’t going to support the prevailing strategy.
Given the 90% drop in the shares over the last six months, it is far past time for Kestrel to step in.
I wrote about Snoozebox last year, the company’s strategy at the time didn’t sound terrible: develop a new product that would work in the Events business (which appeared to have been done) and put all the old stock onto long-term contracts (again, there was proof of concept with contracts already won). I didn’t see any reason to buy the shares, waiting seemed more prudent, but the company’s strategy didn’t seem to foretell the disaster that has subsequently occurred.
The turning point appears to have been the company’s trading update last November and placing shortly thereafter. Management expressed total confidence in the validity of their strategy but noted that costs would increase as Snoozebox went to more events and deployed more stock on longer contracts. By December management realised they didn’t have the cash to actually fund the above expansion. They raised £5m at a 25% discount to the current price triggering indiscriminate selling by shareholders.
The market cap currently stands at ~£3m. At the last set of results, interims for the period ending 30 June, Snoozebox had £10.6m in cash. If we add the £5m of proceeds from the placing to this, Snoozebox would seem to be churning through cash at a significantly accelerated rate against the same period last year. Kestrel bought more at the placing but it is hard to see where the value is here if the company can only lose more cash as it grows.
The most likely explanation is that with net tangible assets of some £7m, Kestrel think their downside is limited, even in the worst case.
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