Small Cap Value Report (Weds 21 Nov 2018) - SOS, BON, IMO, ECK, SRT, SOLI, CRL, JDG, MAI, GMD

In reply to post #420819

I've covered Flybe (LON:FLYB) in the past so I'll weigh in here.

Flybe (LON:FLYB) are in very serious trouble. With current liabilities exceeding current assets at 30th September, weaker than expected winter trading and December/January being the seasonal low for cash balances, if they hadn't done anything they were bust IMO. The credit card acquirers seeing the risk and demanding more collateral doesn't help of course.

By handing back the excess planes and rationalisation routes the company is finally starting to get the sort of load factors that they need to. However the cost saving per seat are only really starting to come in, and is too little too late. If they did this 2 years ago they would have the balance sheet strength to trade through current weakness. The lack of management grip on costs is a major failing here IMO.

The aircraft funding is mildly positive for the company though. Primarily because someone was willing to lend 80% of the value of a Q400. It shows that the value of the aircraft on the balance sheet isn't totally crazy, and it is the discount to NTAV that will attract any acquirer.

With £286.8m aircraft assets & £152.7m combined long-term and short term debt at 30th September, if they could borrow up to 80% then that would move £77m from short-term to long-term debt and their short-term outlook would look a lot better. It really depends on what existing lending covenants are to see if they can actually access further long-term debt form this source. £5m for a hangar and $5m is unlikely to cut it though so they need something else to survive IMO.

Although the aircraft funding deal is positive both from the ability to still access long-term debt and the read through to aircraft asset valuation, this is very much a punt not an investment at the moment given the risk of a total loss.

One thing that is interesting for those who do like a flutter though is that last time I looked IG were still offering controlled risk spread bets on Flybe (LON:FLYB) !

HTH.

This maybe a technical question or I'm loosing the plot - Sosandar (LON:SOS) has only been trading for a couple of years but the stockopedia chart starts back in 2006.. is this a glitch in the system?

In reply to post #420824

Hi Andrew,

I wondered if you would be interested in perhaps holding and recording a call with management after the full year results and perhaps putting a few reader questions to them as well? I’d find that really valuable. 

It's funny you should mention that (re Sosandar (LON:SOS) ) as I've had that exact conversation with the company today. They like the idea, and hopefully I'll be able to publish an audio interview with SOS management before Xmas.

As usual, I'll do it for free (so am not conflicted), and will crowd-source the questions from you, the readers here, in due course. Don't send questions to me yet though, but by all means start thinking about what you'd like me to ask them.

Regards, Paul.

In reply to post #420804

Paul

I haven’t asked you to change what you write, so I am at a loss to understand why you reply as if I had.

In reply to post #420839

Almost certainly a reverse takeover then ... and a quick Google confirms this - AIM cash shell Orogen acquired Thread 35 in 2017, who were Sosander's parent at the time.

timarr

Regret to say the accounts of Sosandar look very unimpressive to me. It's easy to grow a business in revenue terms if you spend enough, and with large negative profits and cash flow that's what it looks like. But there is no point in revenue growth unless it is profitable sooner or later. It will certainly be interesting to get Graham's view.

But having held both ECK and SRT in the past I totally agree with Paul's comments. Jam tomorrow in both cases.

In reply to post #420844

Re Sosandar, chat with management.

Thanks Paul, that would be superb. I’ll put my thinking cap on in readiness.

You’re extremely helpful to us all!

Best wishes,
Andrew

In reply to post #420859

Re Sosandar.

Roger,

I think Sosandar’s business model is certainly scaleable though and the increase in costs looks measured. I don’t think it would make sense for them to try and target breakeven too early. Having said that though they don’t want to forever delay profits and I appreciate there’s a lot of uncertainty over the level to which they can scale, especially given an increasingly competitive online market.

Regards
Andrew

In reply to post #420864

Just further on Sosandar, they’re also getting very decent gross margin on their sales so they’re not flogging clothes dirt cheap to build the revenue line. I think that level of gross margin is encouraging and suggests that they have product that is desireable at a fair price. They may take lower margin to go wider in the future but I think their reported gross margin is encouraging.

I think the speed at which they have grown and the publicity traction they’re getting as well as qualitative things like the management of their Instagram site and the quality of the photography of the clothes and models marks them out for me as having very good potential. I also think the CEOs’ background is very good for building a digital business.

Regards
Andrew

I don't quite understand why nobody has mentioned the return rate of 50%+, it's normal or is Sosandar (LON:SOS) an exception to the rule perhaps ?

DAK why Sosander's admin expenses more than doubled? I couldn't find an explanation in the report - more employees perhaps?

I sold my Eckoh a month or two ago specifically because the adoption of IFRS15 (wasn't it?) was going to have a very negative affect on published revenues and profits in the s-t. This was clearly signalled by the company in the most recent annual report. In the event I thought, after a quick look, that the impact seemed less than I had expected, implying to me that the underlying business was actually rather good. It will take a year or two for the earnings pattern to stabilise but I do think this is worth keeping in mind as a potential winner.
As for Bonmarche, another one I held some time ago, I have a slight inside track - one of my acquaintances works there. She is of the opinion that the retail software they are using is neanderthal and as a one time visitor to a store I was not much impressed by the ranges and displays though they are pretty cheap.
I just think Sosandar is much too expensive and speculative so haven't bought despite some friends urging me so to do. I suppose I wish I had done so but it really is against all the rules of smart investing, isn't it? More than one way to skin a cat but surely couldn't be a major portfolio holding candidate.

In reply to post #420879

I've seen figures between 20% and 40% quoted for returns of fashion items ordered online so 50% does seem high at Sosandar (LON:SOS). But they are selling only to ladies and they return a higher percentage than the gents.
I've heard Carol Kane at Boohoo describe it in terms of the customer's bedroom being their equivalent of the instore changing room. You wouldn't expect people to buy everything they try on in a shop.
The business model has to work if the customer orders four items, keeps two, and returns two. The returns process has to be pain free so they are happy to order again. And the reverse logistics process for handling the returns is as important as the outbound shipping.

Having listened to the live Web cast for Creightons (LON:CRL) today at PiWorld I am as impressed as I was after the FY results. The 3 presenters especially Pippa answered all questions with an abundance of frankness. It refreshing to see a company giving share option and bonuses to ALL staff. Finance questions aside I liked the way that management responded by saying that they had the flexibility to deal with differing situations and that they are still capable of large volume increases given their investment in new manufacturing lines (some still to be started up), their shift patterns and their newly engaged production management.
Note she said there was little seasonality (?)

I hold and will probably increase when SP recedes a bit. A worry is the large spread and lack of FY forecasts (maybe 4p). At current SP PE looks under 10 with a PEG as low as ......

As always DYOR

Steve

In reply to post #420849

GrahamFord,

I was just doing a catch-all reply to the discussion, in which your reply was one.

No harm done, it's not a problem. I'm relaxed about everyone airing their views here.

Regards, Paul.

Re Sosandar (LON:SOS) "high" level of returns, I remember it previously being stated that every retailer has a slightly different approach to the sizing of women's clothing. Hence, for new customers, of which Sosandar (LON:SOS) will have a high proportion given their strong sales growth, the level of returns is relatively high... ...declining once customers get used to the sizing.

In reply to post #420834

Virgin interested in Flybe (LON:FLYB) according to Sky News:

https://news.sky.com/story/virgin-atlantic-in-surprise-bid-to-take-off-with-flybe-11560548

Still no firm offer form anyone but having multiple bidders is key to getting any real premium so would seem to be a mildly positive development.

In reply to post #420879

Further to note 40 and from the Sosandar (LON:SOS) interim results themselves :

"Returns levels have increased during the period (my insert: from 44% to 52%) for two principal reasons: higher than anticipated levels of customer acquisition, as new customers find their correct fit; and a particularly high demand for dresses during the Spring/Summer period. Dresses have higher return rates due to a more complex body fit. Management expects the returns rate will be lower at the full year, reflecting the different product mix in Autumn/Winter."

Good test to see if Mgt do understand their business!

My question to accountants is: how are returns handled in the accounts?  Is the revenue reversed out of the topline if 3 dresses are shipped but only 1 retained and where does the re-sorting cost get charged - is this a below the Gross Profit in Admin expenses? 

In reply to post #421344

Ths Sosandar Annual Report http://www.sosandar-ir.com/arc... reveals how they account for revenue. From page 48: 

"Revenue represents net invoiced sales of goods including posting and packing receipts, excluding value added tax. Revenue from the sale is recognised when the company has transferred the goods to the buyer on dispatch from the warehouse, less actual returns and provision for expected returns."

So the reported revenue number is net of returns. 

I'd guess that they need to make a "provision for expected returns" for sales made at period ends. 

In reply to post #420844

Thumbs up from me for the interview with Sosandar (LON:SOS) management Paul.

Regards.