Since listing in December 2016, Big Sofa Technologies (LSE:BST) has been a big disappointment to investors. The so-called “high growth” tech firm has failed to live up to its billing. Revenue growth hasn’t been that impressive and the former CEO, Simon Liddington, treated the company as more of a vanity project than a serious business. However, there might be signs that the firm is turning the corner under the stewardship of new CEO Kirsty Fuller.
Before we get too excited that Big Sofa is “buy of the month”, there are a number of caveats to be mindful of.
This is still a loss making business. Admittedly the firm does seem to have made progress in H1, cutting its operating loss by 41%, but it still burned its way through £1.1m operationally over the period. Revenue was up by 78% to £1.1m, but this is still a far cry from the promises made at the time of IPO nearly 3 years ago.
Moving our attention to Big Sofa’s balance sheet and the picture is slightly better. Net current assets at the end of June were £1.1m (with that number being something of a theme in this set of interims!). On their own this sum would only have given the company another 6 months to run, but this morning’s £900,000 placing at 4p a share has bolstered the company’s cash position.
You could pretty much have set your watch by Big Sofa placements over recent years. Having failed to deliver the revenue growth its former board members promised, the company left its fundraisings until right before it was forced to release its numbers. This “strategy” smacked of desperation and it is no surprise the company’s share price has fallen as much as it has (down 85% from the post IPO highs).
However, those were the sins of the former board and although the latest placing smacks of the old guard there is a possible suggestion the stock could be forming a long-term base.
At 4p, the price of this morning’s placing was at a minimal discount to the prevailing market price and was also at the same price as March’s £1m raise. Although the 22m shares issued today will boost Big Sofa’s market cap to £7.45m at 4p a share, the fact the company has been able to defend March’s price is encouraging.
Of course, everything now will come down to how Big Sofa performs over the coming months. In today’s interim report the firm was keen to tell us that it has an additional £600,000 in commissioned work not recognised in its H1 figures (up 50% on the previous year). It also pointed out that gross margin was up slightly to 64%.
If Fuller has been able to build on this start to H2, which we are now halfway through, then Big Sofa might be able to cauterize the wound of dilution. This would be a big step forward.
The historic poor handling of the Big Sofa’s funding strategy has created a £7.5m market cap deeply at odds with the company’s financial performance. If the business is not able to stem its losses further over H2 then it seems likely we’ll see another placing in the spring.
But there is still time. If Fuller and her team are able to grow revenue and preserve their gross margins then today’s raise could give the company enough runway through to becoming genuinely profitable. At that point we could see Big Sofa’s share price start to gain ground.
Admittedly trust in this stock is minimal at the moment and market conditions are horrific. I’m certainly not expecting any fireworks here in the short term, but if the company does make any significant progress between now and next March, I expect it will tell us about it immediately. If we hear nothing of any substance then we know what is coming…