First cut – IMMO, LOOP, ESP, ACRL, MPAC

Note: While the 7:59 cut format was popular, most didn’t read it until after 9am, and while it was fun predicting the share price reaction just ahead of the open, I could have easily “cheated” by getting pre-market quotes. Therefore I’m going to publish when I’ve covered everything I want to rather than at a particular time. “First cut” will remain less detailed, less edited, but more timely than my full articles.

IMMO – Fund raising

Immotion have virtual reality experiences installed in aquariums and other entertainment attractions. They say:

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7:59 cut – Staffline (STAF)

A lot has happened since I last wrote about Staffline’s most recent accounting problems at the end of January. The resignation of Chris Pullen announced on 20th February was a critical step towards making the company investable, but it is the slow-motion tsunami of UK coronavirus infections and eventual government response which will be uppermost in investors minds.

Given that their balance sheet is financially geared in the extreme, that they are a forced seller of at least one of their subsidiaries in the worst business environment in living memory and that they operate a staffing agency in an economy where hundreds of thousands of people have been thrown out of productive work, it is hardly surprising that the share price has fallen heavily from 64p to 16.5p in less than two months.

Yet a few days ago I bought in – why?

Firstly, it has long been clear that they are far too strategically important to the functioning of UK economy to be allowed to fail in a disorderly manner. The best way to avoid this is not to let them go into administration, and the best way to do that is forbearance from their banks. Ever since the GFC the UK government has had significant influence with banks. Furthermore they no not appear in danger of exceeding their facility size, just of continued covenant breaking.

Secondly, their business sectors are relatively defensive, including significant amounts in food and they are the go-to people to cover staff sickness.

Thirdly, I believe they are significantly cashflow positive and are trading at a PE of around 1. This valuation reflects a very high level of cheap debt funding which would not normally be sustainable given the evident extreme risks to the banks.

Therefore I could see a situation where they were unable to sell an operating business, but the banks were unable to foreclose or change their terms, allowing the company to pay down debt at its own speed. At this point they are on a genuine P/E of 1x.

Today’s statement reinforces this view.

Note: This is an exceptionally high risk investment. They are likely to struggle to produce audited 2019 accounts, stand a very high chance of being suspended at some point and have a high chance of insolvency.

7:59 cut – Beeks H1 Results

Beeks have issued their H1 2020 results this morning. The key figures are revenues of £4.29m (up 23%) and terminal recurring revenue up 37% to £10.20m. Revenues are moderately below my model for H1 apparently principally due to weakness in their core business. There also appears to have been no growth at the CNS acquisition, but this was as guided.

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7:59 cut – STAF

Staffline (STAF) – FY Update

Audit Background

On 27th June (5 months later than the previous year and 3 days before the suspension deadline), Staffline issued their full-year results and Annual Report 2018. Prior to resigning the previous auditors said (amongst other things):

Our preliminary extended audit procedures identified evidence which raised concerns regarding the completeness of information provided previously by management to us in relation to customer claims and disputes.

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7:59 cut – CMCX, ACSO

CMC Markets (CMCX) – Q3 Update

CMC Markets shocked and confused the markets with their H1 2020 figures. In October they said:

Changes made to the internal business model have resulted in the retention of a greater proportion of client income, meaning that the Group expects the CFD business net trading revenue to be approximately £22 million higher than the £63 million reported in H1 2019 at approximately £85 million.

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7:59 cut – RBG, QUIZ, BKS

Revolution Bars (RBG) – H1 Update

The company today issues a trading update including the Christmas / New Year period. While the headlines are bombastic, the most relevant figure is that like-for-like sales for the second half are +1.2% despite significant spending on refurbishments. Not only is this likely to be barely sufficient to cover increases in staffing costs from the ever-increasing minimum wage, but it also underlines just how necessary ongoing capex is, and the irrelevance of EBITDA figures from an equity holder’s perspective.

Continue reading “7:59 cut – RBG, QUIZ, BKS”