A wolf in sheep's clothing?

When you first read a RNS in the morning, if it appears to be good news then it's a natural reaction to get quite excited. On the face of it, it was good news that BST released a statement yesterday to say IPSOS had injected £3m cash into the company via a placing at 18.5p. It was good news because BST's share price had fallen to a lowly 13p ish and the placing was at a very good premium. Yesterday the shares jumped up to end the day at 15.25p. Great.

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/BST/13552089.html

Is this great news for BST shareholders then or is this news a "wolf in sheep's clothing"?

Whilst the cash injection from IPSOS is good news particularly since the shares have been issued at the previous placing price (18.5p), the share price had fallen below this level for very good reasons.

The company reported revenues of just £0.5m at the half year (similar to last year) and will report just £1.3m for the full year. Cash diminished by just over £2m in 6 months.

Despite this the company is valued at over £11m following the issue of the new shares. It looks very expensive at this stage of it's development.

Reading the latest trading statement from BST, I believe one of the reasons that IPSOS may have invested is because of this extract:-

"work commissioned through IPSOS for major brands including McDonald's, Pepsi Cola, L'Oréal and Danone".

I don't suppose they wanted to turn to these clients and tell them that BST was going bust imminently, and they almost certainly would without the cash . I think an amount of "face-saving" may be involved. Certainly these are major clients for IPSOS and they'd be reluctant to let them down so quickly.

In yesterday's announcement, there are at least two further cautionary notes:-

"as the pipeline of prospective work increases, but a longer lead time to operational breakeven."

"Big Sofa intends to utilise approximately GBP0.7 million of the Investment proceeds to satisfy the repayment of the outstanding Convertible Loan (including any applicable interest), to the extent it is not converted into Ordinary Shares at the election of Eridge before then."

I can't see that this cash injection is going to last very long? If they pay off £700,000 then they're down to £2m, and by implication, cash burn will remain high (£2m during the half-year reported). I guess this injection on current information would last just over six months before further dilution.

As ever, this is not meant as advice to buy, sell or hold and they are just my opinions and reflections. Personally though, an £11m valuation seems very rich and there are profitable cash generative companies out there with good growth prospects that are a lot cheaper.