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

Thursday, Nov 22 2018 by

Good morning, it's Paul here.

Today's report is a mixture of backlog from yesterday, and reports published today. Some was written last night, and some today, so that's why it might sound a bit confusing in places.

Sosandar (LON:SOS)

Share price: 37.0p (up 8.8% today)
No. shares: 116.2m
Market cap: £43.0m

(this is my largest personal shareholding)

Interim results

My main focus on Weds morning will be interim results from Sosandar (LON:SOS) (which is my largest personal shareholding). We already know from the 10 October 2018 trading update what to expect, in terms of H1 revenues (£1.84m, organic growth of a stunning 407% Y-on-Y), and an excellent gross margin of 55%.

However, it's the most recent outlook & current trading comments which will be key. I'm anticipating strong current trading, for 2 reasons;

1) In the last update, it said that September 2018 had seen record sales. That is when new season autumn/winter stock hits the website. So if the initial sales are strong, then you can be sure of a successful season overall (to early January), because the product designs have hit the nail on the head. Fashion retail is mainly about the product. This tiny company is producing better womenswear ranges than Marks & Spencer. Think about that for a moment.

EDIT: results confirmed in the narrative, that October was a new consecutive record sales month. As you would expect for a rapid growth company. End of edit.

2) I monitor the Sosandar website every day. A lot of "new in" styles are selling out (in some sizes) within days of hitting the website - which augurs well for current trading. Social media followers are small, but growing fast on the key ones - Instagram & Facebook.

I wrote the above last night.

For anyone interested, here is my initial take on the interim results this morning. More later;

Figures and current trading are in line with management expectations. I queried on a phone call this morning if management and market (i.e. house broker forecast) expectations are the same thing? Yes they are.

In my opinion, they should beat the full year (FY 03/2019) revenue forecast of £3.9m (Shore Capital), because Oct-Dec is a huge seasonal peak in womenswear. EDIT: Shore Capital has today upgraded…

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Bonmarche Holdings plc is a multi-channel retailer of womenswear and accessories. The Company offers clothing and accessories in a range of sizes for women through its own store portfolio, Website, mail order catalogues and through the Ideal World TV shopping channel. The Company's subsidiaries include Bluebird UK Topco, Bluebird UK Holdco and Bonmarch Limited. The Company has approximately 310 stores across the United Kingdom. more »

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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 »

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IMImobile PLC is a cloud communications software and solutions provider. The Company's segments include Europe and Americas (Europe being substantially all to the United Kingdom), India and South East Asia (SEA), and Middle East and Africa (MEA). Its products include IMIconnect, IMIcampaign, IMIdigital, IMIchat, IMIsocial and Textlocal. IMIconnect is an enterprise cloud communications platform enabling information technology (IT) to create and deliver multi-channel digital customer journeys. IMIcampaign is a multi-channel campaign management platform to deliver personalized marketing campaigns in real time. IMIdigital is a content management system for end-to-end delivery of content services across all digital touchpoints. IMIchat is a mobile and social chat application for contact centers. IMIsocial is a built for radio and television broadcasters to develop audience engagement and live programming across mobile, digital and social. Textlocal is a cloud-based messenger platform. more »

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

49 Comments on this Article show/hide all

Paul Scott 21st Nov '18 30 of 49

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.

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Graham Ford 21st Nov '18 31 of 49

In reply to post #420804


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.

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timarr 21st Nov '18 32 of 49

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.


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Roger Lawson 21st Nov '18 33 of 49

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.

Website: Roliscon
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cholertonandrew 21st Nov '18 34 of 49

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,

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cholertonandrew 21st Nov '18 35 of 49

In reply to post #420859

Re Sosandar.


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.


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cholertonandrew 21st Nov '18 36 of 49

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.


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matylda 21st Nov '18 37 of 49

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 ?

Blog: Briefed Up
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dodge1664 21st Nov '18 38 of 49

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

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WDWombat 21st Nov '18 39 of 49

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.

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JohnEustace 21st Nov '18 40 of 49

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.

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Steves cups 21st Nov '18 41 of 49

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


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Paul Scott 21st Nov '18 42 of 49

In reply to post #420849


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.

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shanklin100 22nd Nov '18 43 of 49

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.

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dangersimpson 22nd Nov '18 44 of 49

In reply to post #420834

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

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.

Book: Excellent Investing: How to Build a Winning Portfolio
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Zipmanpeter 23rd Nov '18 45 of 49

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? 

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Howard Marx 23rd Nov '18 46 of 49

In reply to post #421344

Ths Sosandar Annual Report 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. 

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ironmc 23rd Nov '18 47 of 49

In reply to post #420844

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


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fundtechinvest 12th Dec '18 48 of 49

Interesting Sosandar investor presentation here by Julie Lavington and someone from the Finance team -

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HumourMe 12th Dec '18 49 of 49

Maintel Holdings (LON:MAI)

Liquidity - I thought there must be a data error when I saw that the quoted market price is 410p Bid, and 500p Offer! Our of curiosity, I asked my broker for the real prices, which are 435p Bid (in size of only 1,500 shares), and 475p Offer (in only 250 shares size). What's the point in having a listing, if the liquidity is so bad?

This share taught me about liquidity, when I realized that my trading alone was setting the price. I now add capitalization, spread and volume to my filters to remove the illiquid from my consideration. 

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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 on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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