Sosandar and the difficulty of forecasting #SOS

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.”

May 2018

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.

July 2018

…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

Nov 2018

I’m glad they did £3m placing now, as it removes any concerns about running out of cash.

Jan 2019

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…

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COMMENTS

Wordpress (9)
  • comment-avatar

    The ‘elephant in the room’ is that simply because Paul Scott has been promoting this share, the interest it has attracted from PI’s has probably resulted in a higher share price than would otherwise be the case. There is no geeting around that at times the SCVR is a tip sheet no matter what the machinations of Ed et al suggest.

    Whilst all this ‘transparency’ of what he (and you) owns seems legit the proper thing to do is for Paul not to have any financial interest in SOS at all. Or indeed not own shares in any company that is written about. In fact I would prefer if the SCVR authors keep their financial interests undisclosed as simply too many investors copy what the authors are buying/selling.

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      I understand the desire for “objectivity”, Carcosa, but a requirement not to own shares in the things we talk about would result in people like myself and Paul no longer choosing to write for the public.

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        Accepting that, hence my “…I would prefer if the SCVR authors keep their financial interests undisclosed… ” At least in the Small Cap arena.

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    Re SOS
    Far too much risk , too small at IPO , Huge risk of KEY two management people getting run over by a bus or anything else taking them out . They have no online sales background , just running a fashion mag and it shows . The only reason it has survived is that it is a “Had um Remoulds ” IPO and that got Tom Winnifrith ramping it for all its worth and then Paul Scott took up the batton after Winni Froths interest eventually wained on poor valuation metrics . With out those two promoting thier own holdings it would have vanished into oblivion. Scotties risk management is notoriously bad , having lost millions at one point and taken ten years to pay back the losses . Why take the risk ……honestly .

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    I don’t think that’s a good idea. At least with the current situation we can make allowances for the fact that there might be a certain amount of “bias” involved. If anyone needs a reality check they can always look at Paul’s “Beam Me Up Scotty” portfolio – that proves he’s not infalible and not someone to follow blindly.

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    Is it not the fault of the reader if they treat the SCVR as a Tip Sheet ?

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    Inevitably many readers will take these reports to be tips, even if the authors stress otherwise. For this reason I feel it essential that the writer disclose it should he hold shares in any company mentioned. I know Graham & Roland do this in their articles on this site & I hope they continue to do so. It is then up to us readers to form an opinion based on not only this information, but other available sources too. 

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