Small Cap Value Report (Mon 17 June 2019) - STAF, KIE, PTGS

Monday, Jun 17 2019 by

Good morning, it's Paul here!

7-8am comments

Staffline (LON:STAF)

An update is given today.

Key points;

  • Results for FY 12/2018 due out on 27 June 2019 - cutting it fine for the 6 month deadline - due to detailed investigation into compliance with minimum wage regulations
  • Increasing related provision from £7.9m to £15.1m (a cash cost in 2019) - another example of how the initial assessment of accounting problems is usually the tip of the iceberg
  • Total exceptional costs for 2018 now £32.6m
  • Possible breach of bank leverage covenant - will require a waiver
  • Operating within bank facility limit & expected to continue so
  • Placing to raise £30m + £7m open offer
  • No final dividend, which shouldn't come as a surprise to anyone
  • On the positive side - underlying performance for 2018 in line with expectations, and same for 2019 - EBIT in range of £23-28m, and y/e net debt also expected to be in line (previously guided up sharply)

My view - Placings are normally done on the sly, and the first private investors know about it, is when the deal is announced. It's a terrible system, because information often leaks out, thus creating a false market in the shares.

What should happen is that shares should be suspended when a fundraising of any kind is taking place.

Pre-announcing a placing, as in this case, is an open invitation for traders to short the share. Emergency fundraisings like this can be done (if at all) at a deep discount, as new funders demand their pound of flesh. It all depends on the strength of the broker & its contacts, plus how convincing management are in the meetings that take place with possible funders. So this is a very uncertain situation until the deal is done. In an ideal world, existing institutional shareholders step up and support a fundraising, in order to defend the value of their existing shares.

For me, it's uninvestable until the placing & open offer complete. After that's done, I think it could be worth taking a fresh look at the refinanced company.

It's perfectly reasonable for the bank to require an equity raise, of a similar size to the exceptional costs.

I think shareholders will need to prepare for another potentially ugly day today. Let's hope the broker can get the placing done & dusted quickly - as the price…

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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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Kier Group plc is a property, residential, construction and services company. The Company's segments include property, residential, construction and services. The property division encompasses property development and structured finance, and operates across various sectors with a focus on industrial, commercial, retail, leisure sectors and public sectors. The residential business includes mixed tenure housing partnerships and private house building and its clients include local authorities, housing associations and private rented sector. The construction division comprises the United Kingdom regional building, the United Kingdom infrastructure and international businesses. The services division comprises strategic and local authority highways maintenance, utilities, housing maintenance, Kier Workplace Services and environmental services. It operates across sectors, including defense, education, health, highways, housing, industrials, power, property, transport and utilities. more »

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Premier Technical Services Group plc (PTSG) is a United Kingdom-based company engaged in the maintenance, inspection, testing, repair and installation of permanent facade access equipment, fall arrest systems and lightning protection systems together with fixed wire and portable appliance testing and high level cleaning. The Company operates through three segments: Access and Safety, Electrical Services and High Level Cleaning. The Company's Access and Safety segment offers Safety Testing, Safety Installation, Cradle Maintenance and Cradle Installation. The Company's Electrical Services segment offers Lightning Protection, Fixed Wire Testing, Portable appliance testing (PAT) Testing, Fire Alarm and Extinguishers, and Steeplejack Services. The Company's High Level Cleaning segment offers Window Cleaning, Gutter Cleaning, Building Cleaning and Pressure Cleaning. The Company's Training Solutions division offers Training, Consultancy and Insurance Inspections. more »

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30 Comments on this Article show/hide all

pka 17th Jun 11 of 30

Woodford's funds own 15.9% of Kier, according to this article:

As Woodford's funds have to sell stocks they own in order to raise money for redemptions by their holders, this might put further downward pressure on Kier's share price.

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Paul Scott 17th Jun 12 of 30

In reply to post #484285

Good point, thanks pka.
I knew that Woodford holds Kier, but forgot to mention it in the main article, so thank you for reminding us!
A forced seller can bring a much more attractive price for buyers.
Best wishes, Paul.

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bobsandy12 17th Jun 13 of 30

Thank you Paul Your point on Balance Sheet and Cashflow prompts me to dig out t and go back over the notes from Graham’s excellent day on this topic........clearly worth more than every penny BUT how do we treat PER? Ignore even when it is in the 20 to 40 range??

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doublelutz 17th Jun 14 of 30

With Kier (LON:KIE) there are also substantial short positions and that is something that always stops me buying. Of course they get it wrong sometimes but I work on the basis that they know more than I do!

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InvestorJohn 17th Jun 15 of 30

In reply to post #484253

Hi Investornot1

RE Filta Group (LON:FLTA)
I don't know what is happening but I suspect that people read into the second half weighting that there is more risk now that they don't achieve their expectations and so are moving on...

I had made a mental note on friday to sell today if they fell any further after the weekend and they have so I got out at 1.75 loosing 23% overall so disappointed but afraid of it going further than this...

To me they should have good prospects after buying over Watbio and with all the recurring revenue and year on year growth but I want to preserve my capital at the same time so for now I am out and will probably never return in case it becomes an attempt at revenge that doesn't work out!!

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Investornot1 17th Jun 16 of 30

In reply to post #484305

Thanks InvestorJohn

I'm in some ways in the opposite situation to you on Filta Group (LON:FLTA). I don't currently hold but profit warning looks like a soft one and Filta Group (LON:FLTA) have previously had a H2 weighting so I will monitor and may be tempted to buy once the dust settles.

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LongValue 17th Jun 17 of 30

When it comes to shorters, it's very telling if they appear as a group. In the case of Kier (LON:KIE), some five funds are shorting the stock as of today. So five separate funds are reaching the same conclusion. Whether this is statistically accurate in predicting the direction of the stock, I am unsure. But it certainly is something that I am very wary of. The breadth of the shorters is, in my view, just as important as the depth.

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Howard Marx 17th Jun 18 of 30

In reply to post #484325

There are plenty of UK stocks with more than 5 institutions shorting.

There may be trouble ahead.


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pka 17th Jun 19 of 30

In reply to post #484325

Some of the five large shorters of Kier stock today might be shorting Kier because they know that Woodford's funds are likely to be forced sellers (in order to raise money for large redemptions by the holders of Woodford's funds). That might also be the case with other stocks that are held by Woodford's funds.

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Graham Neary 17th Jun 20 of 30

That's a very stark admission by Kier that it made net debt look good at reporting dates.

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mojomogoz 17th Jun 21 of 30

In reply to post #484333

On short sellers....

I love fundamental short sellers and think they are often the best business and financial analysts out there (having met, interviewed and analysed loads of them including the famed ones)

However, most shorting today is a sort of mirror world to factor and momentum (inc narrative) investing. With Kier (LON:KIE) I think all 5 are rather factor and momentum based (note that Kuvari is a TT spin out): Blackrock, Kuvari, TT, Marshall Wave, Squarepoint.

Hard to be too sure with Blackrock as so big and so many independent teams. But all (probably including Blackrock) are basically running and trading portfolio against a long portfolio. There is an absence of highly committed fundamental short sellers picking on Kier.

Screen stocks on high debt, cash vs reported earnings, earnings downgrade and negative price momentum and you have the universe of high short interest stock

I have no view on Kier fwiw. My point is simply short interest isn't what it once was as a signal (back in the 80s it was a great predictor)

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Desanj 17th Jun 22 of 30

In reply to post #484325

Hi Longvalue,
How do you determine who is short a stock?

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rmillaree 17th Jun 23 of 30

Kier (LON:KIE)

That's a very stark admission by Kier that it made net debt look good at reporting dates.

I would guess that's par for the course with many listed plc's - not really something they can deny if factually correct - basically it says plenty about the morals of the bods in charge  - ie they don't have any. I remember years ago is was common that listed housebuilders would simply withold part of payments due to subcontractors in the last month of the reporting period and then add the payment onto the next month, basically this probably enabled them to make debt/cashflow whatever they wanted it to be.  Its the most ridiculous form of playing with the numbers as you then have really strong comparatives at the next reporting period end which cause the same problem next time and then some.

looking at the last annual report for Kier they comment

(a) Trade receivables and trade payables

Given the varied activities of the Group it is not practicable to identify a common operating cycle. The Group has therefore allocated receivables and payables due within 12 months of the balance sheet date to current with the remainder included in non-current.

Does that read that they are saying its not practicable to age their trade payables? -  -  pretty staggering as i have to presume all their suppliers must have had agreed payments terms that are presumably mostly much less than 12 months ignoring retentions. I guess they have the choice of choosing what is practicable and what is not.

Ok so where does this all end up ? - as ever it seems that  the number that generally takes a hammering from such shenanigans is the trade and other payables. Looking at the current trade and other payables  the balance per the last annual report is £1.5 Billion - one can see why the credit insurers are getting a little twitchy in this regard as the bods owed the £1.5 billion will deffo be at the bottom of the foodchain  - especially when they don't have enough assets to cover their liabilities (negative NTAV as confirmed by Paul)

It may be a bargain but i see zero downside protection if things don't go as "hoped for" - so deffo in the basket case bucket im afraid - as we should probably expect with the price being down over 90% from its peak - ie the smarter money looks like it has left the building some time ago. 

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Neil Williams 17th Jun 24 of 30

In reply to post #484353

Hi Sanj,

I download the Notification and disclosure of net short positions excel spreadsheet on this website for UK shares.


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LongValue 17th Jun 25 of 30

Mojomogoz, looked at cynically, with the right information it's probably a lot easier to pick a stock that's likely to tank rather than a stock that's likely to soar. The problems are very much in the here and now. The potential upside is largely unknown. I suspect that few serious shorters act without some form of inside knowledge – such as a tip-off from a management consultant. And I would suggest that many simply work backwards from the information they have obtained. Having been given the inside track on a company with serious problems, they build a shorting thesis around it. Add some plausibility (Expensive offices, secrecy, PhDs, MBAs, etc.) and there you have it.

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InvestorJohn 17th Jun 26 of 30

In reply to post #484321

Be careful not to catch a falling knife... I would much prefer a share that is pushing new highs

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Desanj 17th Jun 27 of 30

In reply to post #484361

Thank you Neil.

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Gromley 17th Jun 28 of 30

In reply to post #484321

profit warning looks like a soft one and Filta Group (LON:FLTA) have previously had a H2 weighting so I will monitor and may be tempted to buy once the dust settles.

The key phrase though was : "and profits will be skewed slightly more than is usual towards the second half" I vented my scepticism here .

It is though a bit surprising to see a further stark fall three trading days later, I would if a "tip" was updated or rescinded over the weekend. (Was it perhaps a Small Company Share Watch publication weekend?)

c. £90k worth of trades on the day - slightly less than on the date of the statement, but significantly more than an average day - Not very liquid then given the c. £55m market cap.

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mojomogoz 17th Jun 29 of 30

In reply to post #484365

Soft network stuff is important particularly if you're, say, Kynikos and running a 30 stock fundamental stock picking short. In the UK, someone like the well known Odey is towards this sort of approach (bit more macro and technicals going on too). But the 5 on Kier I reckon are fairly short-ish term and data driven in their shorts generally (I know TT, Marshall Wace and Blackrock well historically) with a perspective that it's as much about permitting some leverage into long ideas too.

Having tried short selling myself on a personal (non professional) level I disagree with the statement that its easier to find a stock that tanks rather than soars. I can take a lot of volatility and be patient but there is no escaping the fact that volatility in shorts is particularly trying plus the world inc management are working against you. With shorts its much easier to cut in and out with the price and narrative momentum in a trader sort of way.

The most public short seller in an ongoing accessible way is Marc Cohodes (ex Rocker Partners and CopperRiver) - @AlderLaneeggs. I knew David Rocker but not Marc at Rocker but I got to know him well (professionally) at Copper River his own shop. It blew up in the 2008 crisis - a bit of a fishy one and Cohodes says its as GS pulled his borrow on him and squeezed him out of business (probably true IMO but unverified). He does the full network and forensic investigation thing. Its truly amazing stuff...but its painful and hard work...not normal to TBH. Real short selling IMO and what I would pay for.

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Buffet Margin 19th Jun 30 of 30

In reply to post #484361

Thanks for that Sanj

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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