SIF Folio: Could I have spotted a problem at Staffline?

Tuesday, Feb 05 2019 by
SIF Folio Could I have spotted a problem at Staffline

Taking a loss on a business that disappoints is a routine part of investment. But what we really want to avoid is companies that go bad and result in a 100% loss.

Carillion and Patisserie Valerie are two high-profile examples from recent years. Carillion was easy to spot, Patisserie Valerie not so much.

The latest shock stock is recruitment group Staffline (LON:STAF). This AIM firm had its shares suspended on 30 January, after the board became aware of “concerns … relating to invoicing and payroll practices”.

I added Staffline to the SIF Folio in October and bought the shares for my own portfolio at the same time. So I am keen to know what’s gone wrong. The SIF holding (and my own) were suspended showing a loss of nearly 50%, but this is academic. Until the shares come back from suspension, they’re effectively worth zero.

As my SIF stock screens are not offering any new shares for me to consider buying this week, I’m going to devote this week’s article to taking a closer look at Staffline. Was there something I should have seen?

The story so far…

Let’s start with a look at a timeline of events so far.

4 July 2018: H1 trading update receives warm reception.

Staffline issues H1 pre-close trading update. Everything seems fine. Graham Neary reported a positive impression of the firm in the SCVR on that day. The shares start climbing and gain 30% by early September.

25 July 2018: Interim results look fine.

H1 results appear to confirm the positive story. Shares keep rising.

8 January 2019: Full-year trading update flags unexpected costs.

Perhaps the first sign of problems. The shares fall after the group’s full-year trading update said results would be “in line with market expectations”, but revealed £20m of exceptional costs.

These costs had not previously been mentioned. They related to acquisitions made during 2018 and to the ongoing transformation of the PeoplePlus training business following the end of the Welfare To Work scheme. The end result was that 2018 year-end net debt was expected to have risen to £63m.

To put these figures in context, in 2017, Staffline reported a net profit of £18.33m and net debt of…

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Staffline Group plc is a holding company, which is engaged in the provision of recruitment and outsourced human resource services to industry and services in the welfare to work arena and skills training. The Company has two segments: Staffing Services, which includes the provision of temporary staff to customers, and PeoplePlus, which includes the provision of welfare to work and other training services. Its Staffing Services focuses on providing complete labor solutions in agriculture, food processing, manufacturing, e-retail, driving and the logistics sectors. Its recruitment business operates from well over 300 locations in the United Kingdom, Eire and Poland. The Staffing brands include Staffline OnSite, based on clients' premises providing both blue and white collar, out-sourced, temporary workforces. Its Employability includes work program, prime contractor in over nine regions and sub-contracts in approximately five regions in England. more »

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1 Comment on this Article show/hide all

Simon O'dowd 5th Feb 1 of 1

Very grateful to receive this insight as there is precious little elsewhere. Thank you.

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About Roland Head

Roland Head

I'm a private investor, analyst and writer on stock markets, with a particular fondness for free cash flow, dividends and value. My main interests are UK and US stocks. I also have an interest in (profitable) commodity stocks.  I have passed the CFA Level 1 exam and hold the CFA UK Investment Management Certificate (IMC). One of my investment interests is developing rules-based strategies such as my Stock in Focus portfolio. This reflects a significant part of my personal portfolio and is the subject of my weekly column here at Stockopedia. In earlier life, I worked as an engineer in telecoms and IT. The rules-based and quantitative approach required for this kind of work undoubtedly influenced my investing style.  I also learned a lot from seeing the tech bubble deflate in 2000-1, when I was working for a very large and now defunct Canadian telecoms firm.  more »


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