I rarely buy any stocks based on people's recommendation, at least not without going through their rationale first. However recently, I bought Sitra Holdings based on the call made by The Little Snowball. Their case made for Sitra was fair and substantiated by (or very similar to) previous analyses found here and here. I entered at $0.017.
Disappointingly, Sitra's 1H2017 results did not deliver as expected, with losses increasing from $245,000 to $643,000.
Voluntary Salary Deduction
While most analyses had been lauding the company's steady trajectory to an eventual profitability, they have missed out a component enabling that - voluntary management's salaries reduction. Senior management previously took a pay cut to ease the finances of the company. These voluntary salary deductions were reinstated in the latest set of results and indeed, selling and marketing expenses together with administrative expenses increased.
Senior management reinstating their salary arrangements may be a good sign that company is turning around and they are more comfortable receiving their original salary. However, this factor may have been "beautifying" previous results and maybe the path to profitability may not be as straightforward after all.
Forex Losses
While results were not fantastic in this half year, peeling back the forex losses will reveal a nicer set of numbers. Ignoring forex losses of $0.43M parked under other losses - net, the losses narrow to $213,000 which is definitely an improvement from the previous 1H result.
Conclusion
Taken together, it is fair to conclude indeed, the finances of the company are improving if the above two points were factored out. However, senior management fees should be the rule rather than exception and hence the company do have to work a bit harder to eke out profits.
Looking at the cash flow statement, Sitra only has $2,000 cash at the end of the period, paralyzed by high trade receivables and bank overdrafts. This is another area that the company has to brush up on to survive the next economic downturn. Hopefully, rights issue will not be called as I do not hope for a long-drawn investment in Sitra. If need be, I am willing to dispose this stock at a loss as my capital outlay is purposely kept small due to the speculative play.
