7:59 cut – STAF

Staffline – No news is…?

There are no RNS statements out this morning where I can particularly add value, and anyway, Paul Scott at the SCVR is has already covered PRV, CBOX and MYSL.

But sometimes the biggest news is what has not been announced.

This time last week Staffline announced a second doubling of HMRC minimum wage compliance costs and a £37m fund raise. As commented at the time, it is likely that they had already been talking to institutions over the weekend.

I analysed the company in detail and concluded that (for me) they were a potential buy, despite the significant risks. The share price subsequently appear to stabilise on Wednesday and therefore I added to my position.

Throughout I have been continuously looking at the company and its business model; discussing them with other investors; and looking at the past evolution of other similar situations. From this I have concluded that, if the company survives, much of the upside will be spread over months and years as investors gradually regain confidence and the increasing strength of their business model is once again expressed through high growth and strong dividends.

For the moment however I must accept that if my short-term thesis of last week was right then they almost certainly would have announced the terms of an agreed placing (subject to shareholder approval) by now. It is possible, as some have suggested, that management incompetence is the cause (and perhaps the delay is caused by resistance to board changes), but the biggest risk must be that institutions fear (reasonably or otherwise) there are further historical issues to be uncovered.

For me, the risk-adjusted returns no longer justify holding these shares and (as flagged in my earlier article) I will be attempting to sell this morning. The business however looks like an excellent medium-long term investment and, if it survives as a listed company, there is likely to be enough time to buy back in and enjoy strong returns.

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