Good morning!
Synety (LON:SNTY)
Share price: 185p
No. shares: 8.4m
Market Cap: £15.5m
Shares in this micro cap cloud telephony company have taken a battering this morning, down 35p or nearly 15%, on publication of interim results to 30 Jun 2014. I don't tend to take much notice of share price movements in illiquid micro caps like this, because the price can go all over the place (both up or down) on a relatively small number of trades. It's important to keep focussed on the longer term fundamentals, not the sentiment of the handful of people who happen to be moving the price on any particular day.
I think you also get a lot of traffic in & out of this type of small growth company from punters who don't do any research, but instead buy on magazine tips, and then panic sell a few weeks later, especially if they don't know what the next set of figures are going to look like. It all adds to volatility, and is just an occupational hazard at this end of the market. It also creates opportunities though.
Profitability - the company is loss-making, as expected, generating a pre-exceptional operating loss of £2.2m on turnover of £608k in the first six months of 2014. That might sound terrible, but it's a growth company, which raised money recently to step up its sales overheads, and expand in the USA.
Also bear in mind that as turnover is growing rapidly in % terms, so reported figures lag behind the current position. So annualised recurring revenue (the key performance measure at this stage) was £871k at end Dec 2013, rising to £1.72m at end Jun 2014, and has risen further to £2.0m by 31 Aug 2014. That's encouraging, but the company still has a long way to go to reach breakeven. However, more than doubling recurring revenue in six months is pretty good going in my view.
Balance Sheet - the company raised £5m in a Placing & Open Offer earlier this year, so it's OK for cash at the moment - there was £4.9m on the Balance Sheet as at 30 Jun 2014. The average monthly cash burn was £346k in H1, so I think we have to work on the assumption that the cash pile is going to be spent over the next year or two, which is what the company…
