Tick-tock – Staffline results

The “tick-tock” series of articles will examine companies that have an imminent deadline pending.

Staffline announced on 8th January that their full-year results to December 2018 would be published admirably quickly on 30th January. In the event the market was treated to not one but three announcements:

  • 07:00 results are delayed
  • 15:30 shares suspended pending an announcement
  • 18:14 possible accounting issue – shares remain suspended.

On 12th March that they reported that one of the issues was with National Minimum Wage compliance, that they had previously been aware of an issue and were in discussions with HMRC. They had planned a provision of £4.4m in the accounts but following legal advice had increased this by a further £3.5m, that the results would be lower than expected by this latter amount, but that business was on track with good cashflow. At the same time they reported a couple of contract wins. The suspension was lifted and the shares recovered half of their losses from the 30th January.

Nothing more was heard about the delayed results until 30th April when they confirmed that discussions with HMRC and advisers were ongoing.

On 17th May they issued a profits warning blaming Brexit uncertainty resulting in companies moving Staffline-managed EU workers to direct permanent employment contracts (which somehow apparently doesn’t result in Staffline getting a percentage of their first year’s salary) and customers worrying that they haven’t published their results yet. The latter seems unlikely, however I can see how being party to illegally underpaying workers would affect their standing in the industry and here the worst is probably still to come in the form of publicity when the fines are announced.

Following the profit warning, EBITDA is now forecast to be £23-28m vs (what looks to me) around £45m for FY 2017. They have significant debt with some covenants are based in EBITDA. A subsequent brokers note reportedly cut FY 2019 EPS by 46%, increased year-end debt. The covenant situation appears to be as follows:

  • Debt at December 2018: £63m. If held steady then that’s 2.2-2.7x which is uncomfortable but likely to be within covenants.
  • Forecast debt for December 2019 was: £52m which would allow EBITDA to fall to £17m before troubling a hypothetical 3x covenant.
  • BUT, forecast debt for December 2019 is now £85m which is 3.0-3.7x which is likely to be a breach.

To make matters worse, and the subject of this article, they confirmed that they were still working with the HMRC on the minimum wage issue and could not produce their FY 2018 results until this was resolved and an audit carried out. That means, as of today, under AIM rule 19 they have 3 weeks until the shares are suspended (again). Not surprisingly this has caused the share price to progressively drift down.

A further twist is that New York based Andrew Bellas has been stakebuilding through General Equity Partners including buys immediately before the latest profits warning at over £8 and afterwards at under £3.

So, what is likely to happen next? My guess at the probabilities are:

  • 10% – they will request suspension themselves in the next two weeks if and when it becomes evident that it is impossible to meet the results deadline – this could happen at any moment.
  • 10% – they are about to publish results and again this could happen at any moment.
  • 80% – they either hit the deadline or request suspension immediately beforehand.

In the meantime the share price is likely to continue drifting and falls may well accelerate as the deadline approaches. If I were a holder I would probably join the sellers.

The temptation is to buy in order to take advantage of this and hope for a rise when the situation is resolved. However if they actually hit the deadline the odds of this ending well don’t look good – here are the 9 companies that fell foul of the deadline this time last year:

  • Flowgoup – Never returned, in administration
  • Premier African Minerals – Flat on return.
  • Herencia Resources – Suspended 20 days, re-suspended in February
  • Tau Capital – Flat on return (market cap £0.25m)
  • The People’s Operator – Never returned, in administration
  • Defenx – Fell on return
  • Greka Drilling – Delisted
  • Akers Bioscience – Flat on return (only suspended for a few days)
  • 7Digital Group – Flat on return (market cap <£1m)

Most / all of these companies looked in worst shape than Staffline now, but high debt/equity, the covenant situation and ongoing reputational damage are enough reasons for me to steer clear. A final warning: the forecasts on Stockopedia appear to be out of date.

18 thoughts on “Tick-tock – Staffline results

  1. You fail to mention 30 April 19 RNS that the company stated significant progress been made on extended audit. You also fail to mention that their 2018 accounts were practically ready to go. Also fail to mention US hedge fund has been buying week on week to hold 9.333%. Ill be holding and ignoring your sell suggestion.

    Like

  2. Thanks for your comment.

    Yes, the accounts are doubtless ready to go once the minimum wage issue is resolved, and they have been audited, I certainly didn’t mean to imply otherwise. I did mention the stakebuilding by General Equity Partners and pointed out it included buys both before and after the latest profits warning.

    Importantly, I didn’t suggest anyone sell, I only said that I would have probably sold and that I intend to steer clear. Of course I can see the other side of the argument which is why I took the time to look into them.

    Like

    1. You implied a rationale to sell this stock down going forwards not that you would have sold by now – Its dishonest. “If I were a holder I would probably join the sellers.”

      Like

  3. You also failed to mention in May 2018 they agreed an increased lending facility of £150m. You didnt mention General Equity raising from 3.5% to 9.333% in weeks. That isnt small beer for a suspension and de-list. This is a £900m turnover business, all other stock comparisons were minnows. With little to no revenues. Each were on perpetual declines, absolutely uninvestable . Not even the same ball park as staffline

    Like

  4. “A further twist is that New York based Andrew Bellas has been stakebuilding through General Equity Partners including buys immediately before the latest profits warning at over £8.” That didnt include post profit warning stake building by over 5.5% ontop.

    Like

  5. Wrong again, they stated significant progress had been made on the extended audit in 30/4/19 RNS. “Nothing more was heard about the delayed results until 30th April when they confirmed that discussions with HMRC and advisers were ongoing”

    Like

  6. Small minnow stocks that were already in trouble and many Institutions were selling down theses stocks months and weeks before suspension, here you have Institutions buying! “However if they actually hit the deadline the odds of this ending well don’t look good – here are the 9 companies that fell foul of the deadline this time last year”

    Like

  7. What qualitative and quantitative analysis was applied with your metrics? A shorters dream one could argue, conjecture really, “So, what is likely to happen next? My guess at the probabilities are:
    10% – they will request suspension themselves in the next two weeks if and when it becomes evident that it is impossible to meet the results deadline – this could happen at any moment.
    10% – they are about to publish results and again this could happen at any moment.
    80% – they either hit the deadline or request suspend immediately beforehand.”

    Like

  8. Where are you getting these numbers from?

    “BUT, forecast debt for December 2019 is now £85m which is 3.0-3.7x which is likely to be a breach” (please quote source and covenants)

    Your also comparing companies with markets caps of less than £10m. At £5 (where the stock opened on the day of the latest trading update and subsequent bear raid) this stock £150m. Now £70m at £2.5.

    Really quite amateur journalism in all honesty, probably why you have no job and are a ‘blogger’. Maybe try acting on your own ‘advice’ and see how fast you go broke. It’s actually hilarious how much money you make doing the opposite of your kin. Keep it up.

    Ultimately let’s see where the stock is in 6 months, when you have no doubt started bashing the next stock which is 80% down and ready for a swift recovery. Your timings will no doubt once again be the perfect antithetical analysis. If you want to make money here is the best tip, if you were about to buy think hard about doing the opposite, and once the mugs say sell, ignore the hype and go long. People wonder why 90% of retail loose money is because the whack they read is almost as bad as this.

    Like

    1. Hi, thanks for your comments.

      Companies generally do not publish their covenants (at least until they are broken), but 3x is standard, sometimes 3.5x.

      I compared ALL companies that went to the wire without results this time last year. As I said, most/all were in worse shape that Staffline is now, and I pointed out that some of them were crazy small. I daresay there were some other (maybe larger) companies had the good sense to request suspension just before the deadline – if you have a comprehensive list I’d be interested to look at them.

      I decided to look at Staffline because I saw a potential special situation buying opportunity caused by selling pressure from investors unwilling to risk a suspension. It was only after researching them that I concluded they were not for me.

      I then of course considered shorting (man muss immer umkehren), but discounted that also. After all, who wants to be stuck funding a suspended short position indefinitely?

      Good luck with your investment.

      Like

      1. Correction, you did not point out the 9 comparison stocks were ‘crazy small’. Also they have been consistently saying its a large number of transactions etc.
        Awful writeup. Remember their 2018 performance even with the issues were stated to be inline with expectations. This is a delay and even if suspended relates to PREVIOUS YEARS FOR UNDERPAYMENT OF MIN WAGE, so not massive. Again I suspect you have negative motives here. Failed to address 70% of my observations.

        Like

  9. Unfortunately articles like these that misrepresent and omit timely activities perpetuate declines and only serve shorters rather than protect investors or stabilise companies. Unlike all the other companies, Staffline had a whistleblower who timed their actions for maximum damage rather than alerting all previous months or years. A £900m turnover company being shredded by historical minimum wage issues that are dotted in many contracts over years; so do take time. You should check your facts reference details in RNS than making up your own take on it all including their £150m Lending Facilities.

    Like

  10. Yes, I am aware of the story that a whistleblower may have timed their actions for maximum effect. This would have been highly relevant to an article written in early February, but now the story is about the danger of missing the results deadline and what opportunity / risks this creates for investors. I strongly suspect that If the whistleblower had acted on the 31st December instead Staffline would still be in the same situation today.

    I try to avoid editing articles but will clarify that General Equity Partners bought both before and after the profits warning as I certainly thought this was an important point when I wrote it.

    Good luck with your investment.

    Like

    1. You missed my point, the whistleblower could have notified issue Aug 2018, Jan 2018 etc. Their opportune timing is very suspect to me. I cannot see a rationale behind your article that is littered with errors. You updated General Equity but again deliberately misinform readers they substantially and aggressively increased their holding to nearly 10%. You dare not mention their £150m bank lending facility. You did not say that the stocks who survived life or not post suspension were poor nanocaps. You did not mention that they did survive 1 Suspension and actually gave no historical reference of others. Your stat for last years tick tock date was 1 Year.. Why not use qualitative research than an arbitrary I looked at last year but piddly stocks. Its people like you who encourage worry and make others panic sell. Its shorters who feast on this yet you while time away on a piddly stock like Staffline. You fail to mention they have made £60m+ profit over the last couple of years. You fail to mention house broker saying 800p target under review. You fail to mention hardly any Institutional Investor TR1s have been released since 17 May 19 for holders reducing stake. Bizarre article that should be taken down. Bordering on defamation.

      Like

  11. Here lies your Issue with Staffline, you hold a competitor stock, so for you its in your interest to destroy sentiment on a much stronger outfit for Takeover or growth ‘There are also lots of negative points around Gattica, most of which centre around them being a people business with a questionable moat. I hold, may add this morning, and will certainly be looking to add on any price weakness.’

    Like

  12. Were you paid for this bear-article? Who was the paymaster? Id love to know… “Furthermore I cannot justify spending my time contributing (without payment) to a discussion from which some people are excluded.” What is in it for you to bitch-slap a stock that is already on its knees?

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s