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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