Sosandar and the difficulty of forecasting #SOS
Paul Scott and I are great friends and colleagues. Over the last few years I’ve learned absolutely oodles from him about the world of small-caps, and I continue to learn from his amazing insights into shares.
Over the last two years, Paul has covered Sosandar (SOS) in terrific detail, providing unique, valuable insights into the company for thousands of Stockopedia readers. His writings on Sosandar have been a case study in exhaustive, diligent small-cap equity investing.
And while I don’t own any shares in Sosandar, and have no plans to do so, I will be thrilled for its shareholders if it turns into a great success story (and with the share price at 19p as of today, it has hardly been a disaster).
What has triggered this article is the news of another placing in the company. This reminds me of how difficult it is to predict what will happen at speculative small-caps – even for experienced, professional investors who study these companies in excruciating detail.
The quotations at the bottom of this article are provided purely to help demonstrate the point that financial forecasting is difficult (and sometimes impossible). I wouldn’t claim that I have any special ability to do it myself. Quite the opposite! Paul’s analysis is excellent, and the very fact that his analysis is so good proves how difficult it is to forecast.
So, here’s a suggestion for amateur and professional investors alike: try to insulate yourself from the need to get your forecasts right. The risk of getting your forecasts wrong, no matter how smart you are, is a risk that might not be worth betting large amounts of your portfolio on!
Ways to insulate yourself from getting forecasts (and other things) wrong:
- Buy an index fund (ok, that’s not very exciting!).
- If you’re not buying an index fund, be diversified.
- Buy companies whose results are predictable, i.e. easy to forecast.
- Buy companies with a margin of safety thanks to their asset value (i.e. deep value investing).
- Buy companies with strong balance sheets, so they will survive the occasional loss without raising fresh funds.
- Be extra cautious when dealing with start-ups. They are inherently difficult to forecast.
Below the line, you’ll find some historical quotes relating to Sosandar. As regards the prospects for the company and its share price, I continue to have no opinion.
3 Nov 2017
“the company should have plenty of cash for 2+ years of cash burn.”
11 Dec 2017
“SOS is well-funded for now… So it shouldn’t need to come back to the market for more cash for the foreseeable future.”
There should be enough cash in the bank to get the company through to maybe mid-2020… the fundraising to launch the company on AIM provided for several years’ anticipated cash burn.
…there’s little doubt that the company has plenty of cash headroom for now. It might decide to do a top-up fundraising in 2019 or 2020, but that’s of no concern to me whatsoever, because it would be raising cash at a much higher share price than now…
October 2018 – RAISED £3 million at 32p
I’m glad they did £3m placing now, as it removes any concerns about running out of cash.
Broker forecast is for net cash to bottom out at £3.6m at end 03/2020, and then start rising… Therefore, on current forecasts, which look perfectly credible to me, the business has plenty of cash headroom. Bulletin board chatter to the contrary, is just the usual nonsense that can safely be ignored, because people haven’t done proper research.
3 July 2019
…my view is that there is clearly enough cash for the time being. It may need a top-up placing next year, in my opinion.
Therefore, being realistic, I think there’s probably an increased chance of the company needing a bit more cash next year.
…a £20m market cap, for the UK’s fastest-growing pure play online fashion business, with enough cash for at least 12 months, is probably not going to be far from the lows.
11 July 2019 – RAISED £7 million at 15p
If the company doesn’t generate the planned growth, then it could run out of money again in maybe 2 years’ time and get into a death spiral of increased dilution at lower & lower prices.
27 Nov 2019
There’s £6.9m in net cash, which is plenty for the next couple of years.
12 Feb 2020 – RAISED £5 million at 17p
I was a bit surprised that they’ve decided to raise again, but the reasons make sense…