The share price of Big Sofa Technologies (LSE:BST) has slumped considerably in recent weeks, now available to buy at just 10.6p. That’s a far cry from the 15-16p range its spent most of 2018 in, and a mere third of its all-time high hit exactly a year ago. Big Sofa has missed projected targets the company now predicts it will reach month-on-month breakeven by the end of 2018. But can they get there without a further cash injection?
Today, the company announced the launch of another avenue of operations called ‘Video Observer’. It’s just completed its first successful pilot for Video Observer with 84.51˚, the consumer insights subsidiary of Kroger, the second largest retailer in the world. The system captures video streams from cameras in participants’ homes alongside mobile/wearable cameras used in home or in-store. Big Sofa employs a range of A.I. and human-led tools to extract quantifiable data from the video.
There have been other positive developments, this year too, with additional contracts, namely a £3m investment from consumer research heavyweight, IPSOS, but previous projections from management have not been hit, not yet anyway.
The final results published earlier this month showed improvement but nowhere near previously suggested targets. Revenues increased by 72% year-on-year but the company is still burning cash at a considerable pace. In fact, by my calculations, the company needs more money in the next couple of months and the decimated share price is almost certainly a result of this concern.
Feel the burn
Based on the 2017 results, the company’s cashburn is around £446k a month and the cash balance year-end was £376k. Add on revenue for H2 last year as a guide, and the £3m investment from IPSOS and total cash available this year is just over £4m. Deducting the loan repayment to Eridge Capital of £639k and that leaves a guestimated £708k cash at end of June – which will cover less than 2 months cash burn.
There’s a possibility that IPSOS might invest a further tranche – Big Sofa’s BOD now comprises of an IPSOS representative – although they can’t breach a 30% holding without making a mandatory takeover bid. Big Sofa released an RNS on 18th June to clarify conditions in which the two parties will continue to work together, ensuring transactions are treated as Related Party moving forward.
Chart-wise, Big Sofa was starting to make a positive recovery in an upward trend channel from December to May, but support was broken and the price has continued to decline. Although the stock is in new all-time low territories, some guidance can perhaps be taken from wider trend lines, but there has not really been a strong bounce from the indicated support levels yet. The price appears to be consolidating around 10.5-11p and it’s hardly surprising that the Relative Strength Index (RSI) is screaming oversold at these levels.
Big Sofa appears to be building strong relationships and widening its potential reach, and today’s share price could prove to be a good entry opportunity. However, after repeated delays, it’s imperative the company starts to hit targets this year – reaching operational breakeven should result in a sharp rerate back towards previous valuation highs – but Big Sofa faces immediate financial headwinds and the market is waiting for clarity on this issue.
Author: Stuart Langelaan
Disclosure: The Author owns shares in the company mentioned above