Small Cap Value Report (Wed 16 May 2018) - SOS, BOTB, LOOP, MOSB, CRST

Tuesday, May 15 2018 by
103

Good morning, it's Paul here.

To get you started today, I added some more sections to Tuesday's report in the evening - the full report is here. It covers updates from: Cenkos, Sprue Aegis, Gear4Music, Zytronic, Patisserie Valerie, Accrol, and Lookers.



Timing of these reports

I'd like to respond to a critical reader comment yesterday, which I think was a bit of a misunderstanding.

So this is just to clarify, re timing of these reports. We asked readers a while back whether they wanted a report out every day at a certain time (e.g. 1pm), or whether they were happy for me & Graham to take our time, and go into more detail. Much to my surprise, the reaction from readers was overwhelmingly that you are happy with us taking our time, and that people would rather see more detail & thought going into the articles, than us rushing to meet a deadline. So that's what we do.

People also need to bear in mind that (by far) my main living is from my own investment portfolio - capital gains, and dividends. So to a certain extent, these reports are a sideline, or a by-product of what I spend most of my time doing - researching individual companies, reading broker notes, etc.

There's a lot of background reading, fact checking & thought that goes into each report, each day. That takes time, and sometimes after a very intense 6 hours work from 7am, I'm mentally drained by lunchtime. So I tend to down tools, and have a long lunch, then resume working later in the afternoon, and often going right through into the evening. I finished yesterday's report after 10pm, for example.

As a reader pointed out in yesterday's comments, these reports are free to everyone, and are not part of the Stockopedia subscription. Therefore, whatever arrangements that Stockopedia & I have re remuneration, are nobody else's business really.




Sosandar (LON:SOS)

Share price: 16.5p (up 7.5% today, at 08:35)
No. shares: 106.8m
Market cap: £17.6m

(at the time of writing, I hold a long position in this share)

Trading update

Sosandar is an online women's fashion brand - targeted at the under-served 35-55 year old demographic, who still want fashionable clothing. It's an early stage (hence loss-making)  company, having only started…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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Sosandar PLC, formerly Orogen PLC, is a United Kingdom-based company that operates an online women’s wear platform. The Company’s clothing categories include dresses, jackets and coats, knitwear, shirts and blouses, tops, skirts, trousers, jeans, leggings, footwear, leather and suede, occasion wear, work wear, autumn trends, velvet and holiday shop. Its footwear products include Pewter Metallic Chelsea Boot, Red Leather Ankle Boot, Velvet Cylinder Heel Ankle Boot, Black Leather Stud Detail Ankle Boot, Black Suede Closed Toe Mule, Grey Velvet Court Shoe With Jeweled Brooch, Black Suede And Pewter Metallic Court Shoe, Black Leather Front Zip Ankle Boot, Leopard Print Leather Chelsea Boot, Steel Blue Leather Snake Print Ankle Boot And Black Suede Knee Boot. It also offers latest edit of day-to-night dresses, on-trend separates, luxe leather and outfit-topping shoes through its platform. more »

LSE Price
34p
Change
2.4%
Mkt Cap (£m)
39.5
P/E (fwd)
n/a
Yield (fwd)
n/a

Best of the Best Plc runs car competitions. The Company displays luxury cars as competition prizes in rented retail space within airport terminals, at shopping centers and online. The Company is engaged in selling tickets to passing airport passengers, as well as from online customers through its Website. The Company operates from approximately eight United Kingdom and over two international airport sites, as well as approximately from three shopping centers. The Company operates from various airport sites located at Gatwick North, Gatwick South, Birmingham, Manchester Terminal 1, Edinburgh, Dublin's Terminal 2 and Westfield shopping center located in London's Shepherds Bush. The Company's Indian franchise trades under the BOTB brand from Hyderabad airport. The Company carries out its principal operations in the United Kingdom. The Company's subsidiary is Best of the Best ApS. more »

LSE Price
232p
Change
 
Mkt Cap (£m)
23.4
P/E (fwd)
n/a
Yield (fwd)
n/a

LoopUp Group plc, formerly LoopUp Group Limited, is a software-as-a-service provider of remote meetings. The Company's product, LoopUp, is designed to eliminate frustrations associated with conference calls and deliver a remote meeting experience for mainstream business users. For hosts, the LoopUp meeting includes ability to create a meeting invite directly from Microsoft Outlook in over two clicks; a call start alert to their desktop and mobile/tablet devices as soon as their first invited guest joins the meeting; ability to identify who has the distracting background noise and mute their line, and ability to allow other guests to share their screen at the host's discretion. For guests, the LoopUp meeting includes clicking-to-join the meeting from a link in the invite, entering their name and phone number and LoopUp calls out to them. LoopUp plans include outlook integration, and one-click screen-sharing. Its data centers are located in London, Chicago, Hong Kong and Sydney. more »

LSE Price
335p
Change
-0.7%
Mkt Cap (£m)
184.5
P/E (fwd)
27.3
Yield (fwd)
n/a



  Is LON:SOS fundamentally strong or weak? Find out More »


76 Comments on this Article show/hide all

IGotPoesJacket 16th May 17 of 76
2

In reply to post #364319

Hmm, I'm at work so this is really crude.
In the 16-24 there are 8 lines over 400,000. Over 30 I counted 22.

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fwyburd 16th May 18 of 76
2

In reply to post #364319

Great picture Howard and a valuable correction. I'd love to know the source of the image - is it ONS?.
Cheers
Francis
PS: Anyone else think it looks like the Grinch?

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Robert Smith 16th May 19 of 76
19

Paul, excellent reply to the somewhat aggressive (IMO) post re. timing of your report. I am sure from the quality of the responses that we all highly value the free service that Graham and yourself produce and we would all be somewhat worse off if you decided to chuck it in. I always value your intelligent comments so keep on with the good work.

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Howard Marx 16th May 20 of 76
1

In reply to post #364344

Yes Francis, it's from the ONS based on 2011 census data

I guess we'll have to wait 3-4 years before the 2021 census provides an update

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Amanda Heron 16th May 21 of 76
25

Paul. Trouble is, the oddball comments are the ones you remember and dwell on and think everyone is against you. Not true. WE LOVE YOU and your great reports, whatever time of day, and I think I write on behalf of 99.9% of the Stocko community. I truly trust and value your writing and analysis and always smile when you go 'off-piste'.

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Zipmanpeter 16th May 22 of 76
8

Re Sosandar (LON:SOS)

Like many, I always listen carefully when Paul shows interest in a stock - especially when he says it has multi-bagger potential ! But then I DYOR. When I first checked this share out, I thought it far too risky and complex with too short a track record to judge. However, now it is already beginning to show real traction.

If you compare the interim results (9M to Dec 17) to the full year (12M to Mar 18), and use this to calculate the JFM figures, these show (based on my calculations)

* GM up from 47.5% to 53.3% (ie above BooHoo and N Brown, established online players)
* Turnover for JFM of £606K ie ALREADY at running rate of £1.9Mn pa and I would guess JFM is normally quiet
* Will be disappointed if this fails to reach £3.0Mn this year (Q1 479K, Q2 625K, Q3 800K, Q4 1000K), ie on track

* Average order value is consistently >£90, meaning GP/order of £50 - very high
* High levels or re-orders coming indicating satisfied customers (albeit with 44% returns rate)
* High 44% returns rate will in IMHO be structural since these are largely relatively high priced items including special event purchases (which must include some professional returners 'borrowing' the dress for the night)
* Finally and most subjectively (as as 52 yr old fashion failure), the product looks good - at least a bit distinctive and well presented in a brochure and on their website

I see the female market for affluent 'grown out of fast fashion' as being quite big (target age group 25-60 !) and accessibble Indeed I see a big overlap with another big holding of mine Next (LON:NXT). SOS can skim off a lot of the more fashionable NEXT users who are used to paying a lot (hence Next's 20% op margin) but want a more individual style and label. Indeed, a big risk is one of the big players like NEXT targets the same group well with a bigger marketing budget ie NEXT have their main brand, Lipsey for the younger women and could create XXXX (ie SOS's position for older fashionista's).

However, huge success for SOS is only £20Mn in 3 years (breakeven was said to be £10M). The UK clothing and footwear market is valued at over £50Bn !!! (see https://www.statista.com/statistics/491114/apparel-and-footwear-united-kingdom-uk-market-value/.

There is thus plenty to go after with the very tight and profitable demographic they target. They can thus afford to build the brand organically, the right way for the modern social media age (vs eg the tired, shop soiled French Connection or Monsoon brands) and with fulfilment fully outsourced already. With any kind of success they would become profitable and a very attractive takeover target. Negatively, as paul says without quick success, the story will die and the share with it.

Key issue is going to be finance - they need to grow very rapidly and whilst PR links and endorsements help, marketing costs a lot money to drive scale fast. Personally, I think they will grow faster than originally projected but require additional funding within 12M, at which point everyone will hopefully then get over-excited and say it will be the new ASOS or BOO........I hope so as buying some now but expect to do so again at a fund raising next year!





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momentofclarity 16th May 23 of 76
8

Paul, keep up the good work pal....only been reading your work a very short while but I have been finding it tremendously insightful thank you

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JonBirdy 16th May 24 of 76
14

Hi Paul

Just echoing earlier responses in reply to unwarranted comments on the timings of your reports. For me, as a new investor, both the analysis of figures and all the extra insights you and Graham bring are highly informative and very engaging.

Timing is unimportant - it’s up to me to do the research. It’s the high quality of your writing that counts.

Jon

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lavinit 16th May 25 of 76
5

Great the way it is. Thanks. Ciao

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paraic84 16th May 26 of 76
3

Paul - following Graham's excellent piece on cancellations, are you worried at all by the Best Of The Best (LON:BOTB) buybacks? The market cap is getting small and I would personally find the share more attractive if spare cash was used to fund international expansion or dividends.

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Dickshorty 16th May 27 of 76
7

Got the boss to check out the Sosandar (LON:SOS) website as she falls within the target demographic (admittedly at the top end of it!). Firstly, she had never heard of the company. She was impressed by the website, the products and prices and referring to the management her comment was "if they can't do it with their experience, then who can?". Final stage now is apparently to place an order and check out the quality of the merchandise. If that stacks up then Paul has indirectly added one new customer to the company's roster and directly added one new shareholder to their register.
And I echo the other thoughts on here regarding the quality and value of your work Paul - stay true to yourself and ignore the miserable b*st*rds - life's too short!

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bwakem 16th May 28 of 76
2

My wife (age 39) received a catalogue from Sosandar (LON:SOS) by mail a couple of weeks ago. No idea where they got her details and she'd never heard of them. She liked quite a few of the dresses and I tried to buy her one but they'd sold out in all sizes. Good news they are selling stuff fast, bad news they don't have enough to fill the demand.

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TMFMayn 16th May 29 of 76
1

BOTB

"Growth has been rather lacklustre in recent years, hence why the share de-rated from a growth company, to a more pedestrian rating for an online business.

If management can find a way to turbocharge the growth, then the shares could have big upside. As things stand though, the forward PER of about 20 looks about right. I think GDPR could force many companies to think of novel ways of connecting with customers & potential customers."

A more pressing acronym than GDPR for BOTB is RGD:

From December:
https://www.investegate.co.uk/...   

"As a result of the outcome of the Sportech claim and the submission to HMRC, the Board also notifies shareholders that, under the guidance of its tax advisers and in order to adhere to the new tax rules governing "Spot the Ball" competitions, which are no longer subject to VAT, the Company has now registered for the payment of Remote Gaming Duty ("RGD").

The payment of RGD, as opposed to VAT will result in the payment of higher taxes and will negatively affect the Company's operating margin. The impact on profit in the current financial year is expected to be mitigated by the old tax regime's ongoing application in H1 and a solid start to H2 and therefore the Company confirms that it expects to report profits before tax of not less than £1.4m (2017: £1.5m). The impact on FY19 is expected to be more pronouncedwith forecasted profits before tax of not less than £1.2m".

So pre-tax profit of at least £1.2m for 2019 versus at least £1.4m for 2018.


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Beginner 16th May 30 of 76

In reply to post #364434

"No idea where they got her details and she'd never heard of them."

Is your wife a Next (LON:NXT) customer, by any chance?

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bwakem 16th May 31 of 76
2

In reply to post #364459

"Is your wife a Next (LON:NXT) customer, by any chance?"

Yes, probably their biggest customer!

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Paul Scott 16th May 32 of 76
3

In reply to post #364409

Hi paraic84,

Paul - following Graham's excellent piece on cancellations, are you worried at all by the Best Of The Best (LON:BOTB) buybacks? The market cap is getting small and I would personally find the share more attractive if spare cash was used to fund international expansion or dividends.

Your comment prompted me to ring the company, and have a quick chat about the lack of liquidity in the shares. Management is firmly committed to the shares remaining listed. They're frustrated about the lack of liquidity in the market, and are also aware that buybacks arguably make liquidity worse. However, they also think it makes sense for the company to mop up little scraps of shares when there isn't any other buyer in the market. So they're not actively trying to buyback shares, they just do so as a tidying up exercise, when small parcels of shares become available.

The main message from management is that they're just getting on with running the business & trying to make a success of it. Then positive things should flow from that, in due course, if they're successful.

From my point of view, it all boils down to trust. I've placed my trust in management, having met them several times. I think it's quite important for shareholders in tiny companies like this, to have an occasional dialogue with management. It reminds management that we're out there, and I always drop them an email to thank them for special divis, for example.

BOTB has obvious attractions for a larger group to acquire eventually - because by promoting BOTB's competitions to an existing large customer database that big betting groups possess, any incremental revenues would be almost pure profit.

Regards, Paul.

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Beginner 16th May 33 of 76
9

In reply to post #364464

We must be married to the same woman!!!

Sosandar (LON:SOS) seem to have the Next (LON:NXT) mailing list, or a version of it. Another positive for them, I think.

[This is based on the fact I do occasional deliveries for Royal Mail (LON:RMG) and noticed the catalogues going to the same addresses].

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TMFMayn 16th May 34 of 76
1

"So this is just to clarify, re timing of these reports. We asked readers a while back whether they wanted a report out every day at a certain time (e.g. 1pm), or whether they were happy for me & Graham to take our time, and go into more detail. Much to my surprise, the reaction from readers was overwhelmingly that you are happy with us taking our time, and that people would rather see more detail & thought going into the articles, than us rushing to meet a deadline. So that's what we do."

You might want to change the sign-up form at the bottom of these SCVR reports then: 

5afc31458738cScreen_Shot_2018-05-16_at_1

If the sign-up form says get the SCVR by email every weekday at 12pm, then who can blame newcomers for asking why the report was not completed by 12pm? 

The same point was made two years ago:
https://www.stockopedia.com/co...

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Paul Scott 16th May 35 of 76
4

In reply to post #364434

Hi bwakem,

My wife (age 39) received a catalogue from Sosandar (LON:SOS) by mail a couple of weeks ago. No idea where they got her details and she'd never heard of them. She liked quite a few of the dresses and I tried to buy her one but they'd sold out in all sizes. Good news they are selling stuff fast, bad news they don't have enough to fill the demand.


This was one of the points I discussed with SOS's CEOs at the UK Investor Show. They explained that, for the most popular products which sell out fast, customers can join a waiting list, and this is proving popular with customers.

It's also great for SOS, since they can put in a repeat order with the supplier, with a very clear idea of what quantity, and even the size ratio needed, to satisfy the customers on the waiting list.

I tested this out myself, by ordering a size 18 leopard skin print dress through the website. Sure enough, a few days later, I received an email confirming that the item was now in stock, and giving me first dibs on it.

This is a nice extra string to their bow - being small & nimble, and doing a "test & repeat" model, which physical retailers find very hard to do, is a nice advantage.

Regards, Paul.

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richjp 16th May 36 of 76

Paul, I took a small punt on Sosander after hearing them at UKIS recently. I do recognise that it is a speculative stock.

If their marketing data is correct, I was surprised by the scale of the opportunity. If they start to become successful, what do you think is the likelihood of someone like BOO or ASOS muscling in? Do you think that SOS will have enough competitive advantages to withstand that and what are those advantages?

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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