7:59 cut – STAF, MMH, DSG

Due to the number of companies reporting important news some sections are briefer than normal.

Staffline (STAF) – Further Issues

Staffline today throw their Finance Director under the bus following misstatement of FY 2018 profits, report a further deterioration in trading across both their businesses, confirm covenants will be missed in December and signpost of the sale of their PeoplePlus subsidiary.

Despite being thanked, it is not a coincidence that Mike Watts is leaving on the same day as further accounting problems were announced, and this is further emphasised by reporting the two items on consecutive paragraphs. The (previous) auditors already warned that accounts showed signs of “management” and so this kind of discovery should not be a surprise to watchers. However, it is my belief that Chris Pullen as previous CFO and current CEO shares much of the blame in setting the culture and should follow Mike out in due course.

The highlighting of Brexit and election as factors in their other business is consistent with reports from other companies, although the 16% fall in the core staffing side is perhaps greater than expected and coming during the Christmas peak will disproportionately affect the full-year results.

From memory a covenant breach was already expected in December, but the extent and attitude of the banks cannot have been improved by today’s news. Indicating that they do not expect issues only because of their constructive relationship with their lenders removes any doubt that covenants will be breached again.

The talk of “strategic options” in H1 looks like a clear reference to selling assets and here PeoplePlus is the obvious candidate. The potential sale of this division had been previously highlighted by brokers as a source of support in the case of a further business downturn and PeoplePlus may well be worth more outside of the Staffline stable given then impending bad publicity from the HMRC over minimum wage violations.

Marshall Motor Holdings (MMH) – Acquisition

The strategic logic of the purchase a consistently loss-making group of franchises for a ersatz-premium car manufacturer currently embroiled in legal action with its own customers over faking of emission tests is not immediately obvious. Nor do reports of franchises being “handed back” inspire confidence given that these are held as non-depreciating intangible assets on dealers’ balance sheets.

Reading between the lines, it seems they hope to find value by reducing competition in the immediate area and possibly closing some of their own less-invested neighbouring operations, but this will take several years to come to fruition. Time will tell whether this was a brave move or a desperate attempt to mitigate long-term decline.

Dillistone (DSG) – Board Changes

[Written 08:02: The stepping back of a shareholder that recently supported the company with loan notes sounds like bad news. If Mike Love suspects that his loan notes are not worth investing further time in then investors should question whether the equity has any value.]

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