Good morning!
It's strikingly quiet this morning - very low trading volumes on the basket of shares which I follow in real time. Independence Day weekend in the USA, Greek Referendum, Wimbledon - take your pick for what to blame!
I like this time of year, as thin volumes can create some interesting short term buying opportunities, if someone tries to offload some illiquid stock when there's hardly anyone watching! So I usually pick up one or two bargains over the summer and similarly over Xmas/NY.
Staffline (LON:STAF)
Share price: 1340p (up 1.5%)
No. shares: 27.7m
Market cap: £371.2m
Trading update - this staffing group reiterates its AGM update on 21 May 2015, saying that H1 "trading has been strong and in line with market expectations".
Further comments are that the staffing division has "an excellent new business pipeline".
Its other division, now called PeoplePlus (which operates Government Work Programme contracts) "is making good progress" in the 9 regions where it is the prime contractor.
So this all sounds good.
Valuation - despite the huge increase in share price in the last few years, the valuation (on a forward PER basis) is not outragrous by any means - at 15.2 times forward earnings, as you can see from the usual graphics below.
Look at how strong EPS growth has been. Without wishing to pour cold water over things, as there's no doubt this company has been a big success story so far, I should point out that a lot of the increased earnings has been achieved by gearing up the balance sheet, and making acquisitions funded partly by debt.
Balance Sheet - the last reported figures show net tangible assets are negative, at -£15.8m. Gross bank debt is fairly considerable, at £35.8m, although that is mitigated on the balance sheet date by cash of £18.4m, so net debt was £17.4m.
I think it's more important to look at gross debt, because the year end cash figure is often window-dressed to a level which is atypically high, at many companies.
This level of debt is not alarming, but it's getting towards the top end of what I would say is comfortable.
Share based payments - these look excessive to me, so I am flagging it up.
In 2014 the company made an adjusted operating profit of £19.4m, but then awarded £3.7m in shares to management. That's nearly 19%…
