Small Cap Value Report (Thu 27 Jun 2019) - STAF, TND | Paul Scott

27th Jun '19 by Paul Scott

76 comments 11959 reads

Hi, it's Paul here!

I'm thinking of ditching the 7-8am quick view format, because;

1) Very few subscribers here seem to read the SCVRs early (usually only about 15 reads by 9 am),

2) It's very stressful for me, starting the day running flat-out, against a short (self-imposed) deadline, and drains a lot of my energy, for little benefit to everyone.

3) Mr Contrarian posts an excellent initial view every day which usually covers the main points (so I'm pointlessly duplicating his work, arguably)

Therefore, providing there are no serious objections, I'm minded to go back to the old format, of me having less time pressure, and taking my time to rummage through, and report on, the most interesting RNSs of the day, by mid morning towards lunchtime. Then later, more in-depth articles, if it takes my fancy, and needs more work (typically 2-4 hours per company results statements).

I think that's what most subsribers want anyway, but there's no harm in experimenting with different formats & ideas. Then settling with whatever format we all like the best.

Staffline (LON:STAF)

Share price: 116p (down c.23%, at 10:43 - volatile, so likely to change)
No. shares: 27.9m existing + new shares: 34m placing + 7m open offer (if fully taken up) = 68.9m
Market cap: (assuming placing & open offer fully taken up) £79.9m

This is a financial distressed staffing agency. It made too many debt-fuelled acquisitions (7 in 2018 alone), and then ran into serious difficulties once it emerged that it had underpaid staff in breach of minimum wage regulations. The shares were suspended for a while, but (bizarrely) resumed trading whilst the current fundraising was progressed.

There are 2 announcements today (so far);

Final Results - for the year ended 31 Dec 2018. The deadline for publication is 6 months, so Staffline has only narrowly avoided the shares being suspended again. The RNS today is just 6 pages long, as it's a summary only. The full annual report is here on Staffline's website. I'll plough my way through that later.

On an initial skim, this net debt bridge is very interesting, as it clearly shows where management went wrong - taking on too much debt to fund a reckless acquisition spree;

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Mizenhead18

27th Jun '19

Very happy to get your report later in the day

sheeza

Interesting RNS from Crimson Tide (LON:TIDE) puffing their recent contract gains. They certainly seem to be a more impressive list than one would expect from such a very tiny business, I hold a few.

JohnEustace

I just gave you an upvote on my iPad Ken. Probably depends on the vintage but on my 2018 model I found that if I press on the thumbs up to select it then lift my finger and press again it does record the vote. Can’t get it to work on my iPhone though.
Overall I agree with your point. The Stocko site isn’t mobile friendly and therefore out of touch with the way many of us use it. So the votes recorded are lower than they should be.

Whether it’s wise to live our lives for the little serotonin hits of online thumbs up is another question.

Mrken

Hello Mr Contarian
STAFFLINE offers.
As a holder what actions are available to me and .I am in a nominee account.
Thankyou.
Mrken

gary3980

Airea (LON:AIEA) - I also hold. A very disappointing and unexpected update today. The CEO sale a few months ago – right at the top, and when he wouldn’t get that price in the market - to the EBT leaves a particularly bad taste. As has been commented on here before, a lot of small cap investing is placing your trust in management and if I do sell this is likely to be the reason over the profit warning in itself.

sharw

Paul - more than happy for you to ditch the quick early comments so that you have more time and energy for in-depth analysis later.

I have often regretted quick reactions leading to an early trade as there are often peaks and troughs between 8 and 9 as shown by the shares on which I would appreciate your views today:

Scientific Digital Imaging (LON:SDI) - uplift of expectations

Airea (LON:AIEA) - warning

xcity

I'm very happy for Paul (and Graham) to only write on what interests them. The value in their reports comes mainly from their using their interest (and the consequent experience & knowledge) to provide a view that won't be found elsewhere.

However good an analyst is, providing quality reports on 5+ companies a day isn't possible. Unless they already know quite a lot about the company or industry.

I'm sure we can all do without more IC level summaries.

FWIW I pay most attention to Paul when he's commenting on retail or when he's waving a red flag.

Martin C

Hi Paul,

I think what matters in the quality of the write-up/analysis rather than the timing of it - in any case we always have Matylda's and Mr Contrarians useful early comments to go. So if you feel that its better use of your time to work later in the morning then i'm happy with that!

Would appreciate your thoughts on Airea. Although the drop looks like a slight over-reaction i've reduced my holding by 2/3rds this morning. Not so much because of the company, but i'm seeing increasing signs of a market top - late stage of economic cycle, US about to cut rates, negative long term rates, gold rising. Having said all that it would not surprise me to see another leg up in the markets before a big fall...

My strategy has been to initiate some levaraged short positions in the DAX in my SIPP, as well as buying up leveraged Gold funds, those based on daily spot Gold prices, as well as miners etc - unfortunately they are mostly GBP (Brexit risk) and USD (rate cuts looming) denominated - and i'd rather be in other currencies right now.

Regards
Martin

Airea is a weird one. I sold a couple of batches at 9.11am when the official price was 51-56, but the actual (as shown by 53.5 mid in the graph), yet the true buy-sell price was 55-57. Consequently I was able to sell at just above 55.

davidjhill

Manolete Partners (LON:MANO)

Personally I think this is currently way overvalued. These types of firms are often measured on P/NAV which for the market leader Burford is 2.8* and for Litigation Mgmt 1.7*
Looks like Manolete Partners (LON:MANO) is on 5* whereas I would argue it should be sitting at same or just above Burford to factor in higher levels of growth but minus a discount to Burfords deservedly market leading premium rating. (never owned them - wish I had :) )

Cash generation was poor as well at just £3.3m with 2/3rds of profit made up of unrealised revaluations.

However, growing strongly and excellent ROCE, so overall a very nice company imo but currently overvalued. It is highly illiquid and this type of investment is in demand so I fear it wouldn't take much to move this a good leg lower.

I watch with interest. certainly if it drifts off towards 330-350p where it will be circa 3* P/NAV then it will go on my radar. For now though I prefer and hold Litigation Capital Management (LON:LIT) as it generates much better cash and trades at a quarter of the P/NAV

ken mitchell

John.

Unfortunately your method doesn’t work on my older IPAD.

It’s not the serotonin hit really, but if good replies get recognition it both encourages more people to read them and the poster knows that it was worth the effort. There have been some brilliant articles with incredibly low thumbs up, and presumably so many using on phones and IPads is the reason.

HornBlower

Paul

no issue with you reporting later and about what you are interested in. I also agree with others that going back to news from recent days is valuable if you weren't reporting at the time.

I would be very interested in your thoughts on momentum for Sosander (LON:SOS). has drifted down from 40 to below 20 in the last 6 months. More interesting is that they seem to have been discounting summer clothes a lot in the last few weeks. I don't recall them doing this in the past. other fashion retailers also seem to be struggling this season. details of Q1 trading in a few weeks time will be important

FREng

Andrea
I disagree that Paul should write about what subscribers want even if the company doesn't interest him. It takes a lot of time and effort (sometimes a few hours) for Paul to analyse the accounts of a company. To spend that time on work that doesn't interest him would be very demotivating. I don't want Paul to get fed up and stop writing SCVR!

Much better, IMHO, to be guided by his analyses of companies that interest him and for us to try to apply his forensic approach ourselves.

rhomboid1

Re Airea (LON:AIEA)

I’ve spoken to the company & can say I’m now poorer but happy

1 It’s the last 6 weeks, that has seen orders are being deferred for delivery by 1-2 months & not cancelled
2 Order Bank is higher than prior year
3 It’s smaller ad hoc orders that are affected not project work which is ahead YoY
4 July & August are typically 25% of annual turnover & look good from an order book basis
5 New product lines are being received v well..but orders are longer term typically & are going into order bank
6 reasons for slippage are either customer cashflow ..or job itself being deferred
7 Brexit stock build is being unwound
8 Margins are not declining
9 New sales people are on board & bringing in orders
10 Investment in the business is continuing

I’m continuing to hold & will buy more as funds arise

Wol

Hi Paul
Absolutely your best writing comes when:
* you are interested in what you are writing
* you have time to think clearly
So however, whenever and whatever works best for you will give us the best reports. And the same goes for Graham. There is no need for the two of you to try to produce a homogenised product. Your different interests and styles provided added benefit for us
And purely factually, I would also like to echo Armorduck's question about your metrics. I also usually dip into the RNS's before 8:00am and then move straight on to the SCVR, so would normally have read whatever is already available on the SCVR by 9:00am. If empty, no problem. If just a list of the companies you plan to look at - that would be a good pointer for me to do my own research.
And, agreeing with another response, I would rather read about something that interests you (market commentary, an RNS issued a few days ago, ...) than a response to a company in which you have no interest. Though of course the dismantling of a set of adjusted (read faked) set of accounts can be the most interesting as well as the most fun to read.
OVERALL - you both deliver a truly great and most appreciated service

Zipmanpeter

Hornblower - I have watched the same. Obviously Sosandar (LON:SOS) are still so small that a few poor buying decisions can kibosh their results. They absolutely bet the the house on animal print and that won big, so they did well. They are still pushing that but it is clear the fashion market moves on and I think it has left them a step behind - critical as they are not really driven by an internal "creative vision" but rather follow external trends smartly.

However, I don't see them desperately price off promoting except in the online clearance outlet to get rid of last season/winter clothes.

I agree re Q1 update is important - more than £1mn (ie x2 vs year ago) I we can be confident it is a relative winner. Less than that and I will be nervous since I will need to believe it is only a blip.

Rhombold1

Thanks for the update on Airea (LON:AIEA) - did you get any insight into the expected hit to profit this year, or any explanation of the late RNS?

Martyn

fwyburd

Re: Sosandar (LON:SOS)

For those who avoid the 'shouty' PI Bulletin boards, an investor on ADVFN contacted them last week and reported back as follows:

I sent Sosandar investor relations an email at 2pm today bemoaning the state of the share price and specifically querying why, if all is well, can’t something be communicated to steady the ship on a more regular basis.

I was pleasantly surprised to receive a reply less than 2 hours later requesting my phone number and I’ve just had a pleasant chat with someone from their team.

Obviously there was nothing disclosed that’s not public. But positives I took are

1. The speed they called back. How many companies care enough about their shareholders to do that.

2. Their shared frustration with the SP and their awareness of idiots talking down the price on this board and others with zero justification. As you’d expect their position is they can’t take the time to respond to every silly comment.

3. I asked why their couldn’t be more regular comms of numbers when there is weakness in the price. Their view is they already report often and at any rate if there was a likelihood of figures being materially less than previously communicated the company has to announce this immediately. It would of course be naive to assume all companies observe such rules to the letter but we have no reason this far to doubt Sosandar’s rule following.

There will be an update on figures in the first couple of weeks of July. I was told company is planning some event around then specifically for retail investors which I’m going to attend. Everything I heard today - none of it news of course - and the tone of the representative reassured me to ride out the current nonsense.

Hope that helps.

cheers

Francis

Gromley

WRT Staffline (LON:STAF)

I'd agree the "H2 weighting" looks to have more credibility than some we see.

In May the effectively said that they were losing business because potential customers thought they were going just.

The refinancing (if successful) should enable them to dispel this idea. However, there has got to be a risk that it takes much longer than 6 months to rebuild trust. No hurry to get involved here imho, even if the fundraising works.

Kromek (LON:KMK) doesn't seem to be on anyones agenda?

Looks dramatically undervalued to me now based on results today. Good piece on Research Tree by Cenkos so worth reading that.

A few points to note

world class product - used by US military and blue chip medial companies.
Pretty much at cashflow b/e now.
25% of the market cap is actually in cash so well funded but as Cenkos point out working capital demands are now at peak levels so drop from here : looks like TNAV is £50m so trading on 1.3* book
Revenue visibility is circa 80% for next year which is phenomenal comfort from a forecasting perspective
A number of large multi year contracts signed that customers appear to both renew and enlarge
Big market opportunity that Kromek (LON:KMK) are they key player in.

Small Cap Value Report (Thu 27 Jun 2019) - STAF, TND

Staffline (LON:STAF)

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Paul Scott

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