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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  Is LON:STAF fundamentally strong or weak? Find out More »

30 Comments on this Article show/hide all

MrContrarian 17th Jun 1 of 30

My morning smallcap tweet: STAF's serial stumbles, Kier cash crisis.

Staffline (LON:STAF), Audioboom (LON:BOOM), Kier (LON:KIE), Keywords Studios (LON:KWS)

Staffline (STAF) another stumble as it delays results to 27 June, increases provisions to £7.9m and plans placement of £30m to deal with likely covenant breach. I hold.
Audioboom (BOOM) SPV set up to gtee minimum rev payments to some content providers. BOOM to pay 8% of net advertising revenue plus 2.5m warrants for every US$1m of gtee. SPV owned equally by the Chairman, and Candy Ventures, BOOM's largest shareholder. It's a bit whiffy.
Kier Group (KIE) fire sale including property division to cut debt. No divs for 2 years. Going to focus on cash generation (and not crash generation).
Keywords Studios (KWS) CFO to leave. He is thanked.

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brianbathgate 17th Jun 0 of 30

Staffline please, looks complicated!

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annettefrench4359 17th Jun 3 of 30

MrC, Staffline provisions increased from 7.9m to 15.1m

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tomps3 17th Jun 4 of 30

IG Design (LON:IGR) FY19 results presentation given last week, by CEO&CFO

Always an impressive presentation.

Future KPI's incl EBITDA +10%; cash conversion 75% ROCE +24%

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Chrisfarrell21 17th Jun 5 of 30

Hi Paul,

I'm a big fan of 'After 8's'.

Happy Monday.


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Investornot1 17th Jun 6 of 30

Anyone know what is happening at Filta? Down nearly 16% today on no news. In their last update they said that sales would be weighted towards H2 but this seems an excessive and delayed reaction?

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Wimbledonsprinter 17th Jun 7 of 30

Kier (LON:KIE) includes a useful chart of (an amazingly) smooth graph of the level of net debt across FY17 and FY18, in its 2018 annual report p54. This indeed shows that net debt is at its lowest at the end of the reporting periods (June and Dec). For example in around March 2018 net debt seemed to peak at just over £600m, versus £186m reported as of June2018.

In addition, p53 of the same report says that the debt of the JVs is generally non-recourse to the parent - although seemingly there might have been around £38m of guarantees given by the parent on this JV debt, still outstanding as of start 2019. Link to the annual below:

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iwright7 17th Jun 8 of 30


A very perceptive Keir comment of yours:

....This reminded me that I'm increasingly coming round to the view that I should treat the balance sheet & cashflow statements as the most important. The P&L is really the least important statement, as it's the easiest to massage to present a favourable picture. Therefore, maybe as investors, we're getting it all wrong by concentrating on earnings-based valuation measures such as PER?

If I look at my own portfolio it generally the strong balance sheet and cash generating companies that have done best for me. Often these type of Quality/Growth companies have very high PERs, which would put many off.  A metric best ignored! Ian

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shipoffrogs 17th Jun 9 of 30

Good analysis of Kier.

Shareholders put in £255m in a rights issue and get about a fifth of that back in dividends which are then taxed? Insane.

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doublelutz 17th Jun 10 of 30

In reply to post #484273

Only when the dividends end up in the hands of individuals or trusts.

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 Are LON:STAF's fundamentals sound as an investment? Find out More »

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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