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Xchanging plc BAE Systems signs new UK Procurement Contract Xchanging plc ('Xchanging'), the business process and technology services provider and integrator, today announces that BAE Systems has entered into a new contract for its procurement services in the UK for a further period of three years following expiry of the current UK contract at the end of 2012. The award of this contract follows the announcement in August 2011 of two significant contract wins, one with BAE Systems in North America, and a second with L'Oréal in Europe. Together with the new BAE Systems UK contract announced today, which will have a lower margin than the existing contract, these contracts are expected to contribute towards Xchanging's aim of re-generating profitable growth momentum.
http://www.investegate.co.uk/Article.aspx?id=201202210700107731X
Ken Lever, Chief Executive of Xchanging, commented: "The renewal of this contract is testament to the robustness and quality of the service Xchanging has delivered to the LME over the last seven years. We look forward to continuing to develop our relationship and to supporting the continued growth of the Exchange." Martin Abbott, CEO of the LME, said: "We are very pleased to be renewing our contract with Xchanging. They continue to provide world class IT services that have enabled the LME to maintain its position as the world's leading metal exchange."
Renewal of London Metal Exchange Contract Xchanging plc ("Xchanging"), the business process and technology services provider and integrator, is pleased to announce the renewal of its contract to provide technology services to the London Metal Exchange ("LME"). The contract, which renews on 1 January 2012, is for a minimum of three years, with a two year notice period after the first year. The contract is expected to generate revenues of c. £75 million over its first three years. The LME is the world's premier non-ferrous metals market. Xchanging has provided the LME with high-availability transaction processing systems since 2005. The partnership has enabled the LME to achieve a tenfold increase in electronic trading volumes and supported its expansion into new markets.
You may not be overimpressed with Unwin's track record but due credit to him in buying a large number of shares upfront and putting his money where his mouth is. This a far larger purchase than I ever saw any of the previous directors doing expect David Andrews and Richard Houghton. Let's hope that the man doubles his money by the time of the next results.
I wasn't taking your comments as wanting to get into a row; on the contrary I welcome a sharing of different views as the way to learn. Actually I don't think our views are that different. Sales I agree is the Xchanging soft spot. I don't agree that they are hung up anymore on EPs and in fact have not been for 3 years or so. They still chase big deals but are not so arrogant about the structure hence the success earlier this year with BAE Systmes in the US and L'Oreal. What they have never managed to get is the machine that just grinds out Sales as Capita, Serco or IBM have. Time will tell as to whether you are right or I am on Ken Lever as a CEO. I think he has got what he takes but is a naturally cautious and understated guy who will thrash expectations this year. Where I agree with you is that the big driver of that will be cost out (COO work) however I would say that the strong results that I anticipate for 2013 whilst obviously capitalising on this year's cost out will also be based on the two above mentionned contracts starting to drive significant revenues and associated margins (actually the way Xch are now accounting for procurement revenue means that he revenues growth will be more modest than otherwise but margins will be stellar). I think you will be waiting for ever if you are aiming for 45p and can't see the share price being low 60s for long but then as you will have seen my view on fair value at around 150p then you can work that out. I am convinced that we will see profits of £40M + this year. Even at a discounted p/e of 7 that would value the company at c280M which is double today's price.
I don't want to get into a row with you - you seem to know a lot about XChanging but I do have conflicting views David A was a space pilot and so autocratic that there was no one to keep him grounded. Great for the entrepreneurial stage (and he did an extraordinary job building Xchanging from nothing to FTSE listing in 7 years) However, neither he nor his Chairman could stay after the Cambridge fiasco which showed a lack of DD and, yes. judgement (unusual for someone with so much perspicacity) . So we're not at odds over replacing them (nor on the loss of BAE BTW) but I think we have a COO not a CEO now and a lack-lustre Chair in my opinion. Lveer can reduce costs, negotiate with banks, streamline operations and reduce dividends but can he inspire the market and sell? For me, the jury's out. . XChanging needs new contracts, new blood and a fresh take on the market and value proposition TO the market. Their Catholic one deal shape fits all was never going to provide sufficient scale to stay at the flotation SP let alone become a real Multinational contender. What are your views on the sales team? If Lever is doing a good job on the bottom line - who's in place to generate revenues? Unlike the likes of Accenture, IBM, Infosys Genpact - XChanging hasn't yet got a brand that provides a steram of opportunities so it has to go to market and I haven't seen much of that so far I have no agenda except I know a little bit about these guys. I would have invested, very nearly did, but don;t think we're at bottom yet - maybe 45 (TO ?)
The contract with BAE Systems for HR is worth around £15M p.a. with profit at under 10%. The juicy part of that deal was pensions which was lost last year. Sure it is never good to lose a customer but this one has been on the radar as a loss for a while; admittedly I thought that they would keep the data management part of the contract but I would still not rule it out that they will keep this. The key question with BAE Systems is whether they keep the contract for the procurement in the UK; if BAE Systems were going to terminate that then I would have expected them to annouce that at the same time as HR so to me it is telling that they have not. In addition, as I have written before, the fact that BAE Systems now have a partnerhship in both Australia and the US with Xchanging for procurement, (the latter signed back in the summer and incidentally dwarfing all other Xchanging deals yet not reflected in the share price) suggests to me that the procurement deal in the UK will be retained. In response to XMaggie I have faith in Lever because when I have met him I have been impressed by his quiet and considered manner which is exactly what I believe Xchanging need at the moment after David Andrews' visionary yet salesman approach. I look at what Lever has done this year and it has all been to my likeing (closing the loss making US business and even making money by selling it, shutting the extravagant west end office in Hanover Square, stripping out superflous middle management and a cull of senior management, renegotiating the bank loans out to 2015, cancelling the dividend and taking the pain in this year to put the company back on a sound financial footing, continuing apace with the move of resource to India, so much so that Xchanging now has around 50% of its staff over there and from early next year will have a massive competitive advantage with the opening of the new 1000 seat facility in the tier three city of Shimoga, cancelling the reseller programme for technology which destroyed margins but bought revenue, the signing of the L'Oreal and BAE Systems procurement deals, the changing of the Board and finally the removal of a Chairman whose time at the helm was disastrous. You don't achieve that in your first year in the job without significant energy. If by dynamism you mean the David Andrews type I think Xchanging has had quite enough of that for the time being!
Why have you so much faith in Geoff Unwin (Or Lever for that matter?) Look at the SP performance of both companies under Unwin's Chairmanship - hardly stellar. XChanging needed a new broom with energy and dynamism - didn't get either in my opinion
Never good when you miss out on repeat business
BAE Systems HR Contract Expiry Xchanging plc ('Xchanging'), the business process and technology services provider and integrator, today confirms that BAE Systems has informed Xchanging HR Services ("XHRS") that they do not intend to renew the existing HR outsourcing contract when it expires at the end of 2012.
Monday was the interim update (Q3 results) where Xch confirmed that they are on track to meet management's expectations for the full year. They also said that they were ahead of expectations on cashflow and would return to a net cash position by year end. Of interest is to me is that they used the words 'management expectations'. As I wrote a few days ago the analyst expectations are all over the place; I think management is actually pretty bullish in terms of its expectations but given the thumping it took last year for underperforming analyst expectations it is consciously leaving expecations low. The net cash position is also interesting as with revenues broadly flat (also interesting as the market seems to pricing a car crash) it suggests that the cost cutting is already feeding through to the bottom line and this in a year when the restructuring costs (departure of lots of senior mgmt including David Andrews, the closure of Hanover Square head office...) will have been huge. In short and I know I am sounding like a stuck record, the stock remains in my opinion massively undervalued. The market is starting to see that the situation was never as bad as it was pricing in and also that the turnaround is real. When the end of year results are announced in Feb we will see confirmation of that which is when I expect to see the stock move signficantly but in mean time I am hoping that the market will start to be a little more insightful about this stock.
.....anything behind this surge in SP ??
Another move by Xchanging that I really like the look off. It was not appropriate that Nigel Rich,who was on the Board at the time of the atrocious decision to buy Cambridge and who as Chairman did not guide David Andrews, his CEO,a way from his worse excesses should stay in post. It was however also not appropriate for Nigel Rich to go at the same time as Andrews as that would have left the company leaderless as a result of Ken Lever being both new to Xchanging and only at the time acting CEO. That Xchanging have waited is therefore quite right as it the fact that they are making the change. Geoff Unwin is exactly the right profile for the role having both chaired Liberata and been CEO of CapGemini; if I have a reservation it is that he has rather a lot of other Chairmanships, this obviously speaks well for experience but he will have to guard against being spread too thinly. At 68p Xchanging strikes me as singularly undervalued; I continue to hold my view that fair market value is £1.50 and that with a takeover premium this could reach £2. Xchanging drifted up to £1.15 following the confirmation Ken Lever as CEO and David Bauernfeind as CFO (both of whom have not put a foot wrong so far and were good appointments) along with the sale of the dog of a US workers comp business. Since then they have also announced two enormous deals in procurement with BAE Systems in the US and L'Oreal in Europe yet the price has nearly halved as investors run from cover from smaller companies on the back of the choppy stockmarket waters. Forecasts for profits for 2011 are all over the plave with the range being between £20something Million and £50 something million. In short our analyst friends have not got a clue but then as I have previously written the only reliable thing about analysts is that they will be wrong by a long way. My own forecast is that the results will be towards the top end of that range. If I take a profit of £40m on a PE of 10 that would value the company at £400M which is nearly three time the current value.
.....the continued drop in SP ? Bargain time soon..........?
........but for what it's worth, I'm back in at 74.75p
I continue to like what I see of the new Xchanging under the leadership of Ken Lever. They announced today that two of the board are stepping down: 'Xchanging plc, the business process and technology services provider and integrator, has announced that two non-executive directors, Stephen Brenninkmeijer and Johannes Maret, are retiring from the Board of Xchanging, with effect from 31 August 2011.' (source Stockwire.com) Both of these directors have been there since the early days and as such were very much 'David Andrews' men. You also have to feel somewhat uneasy that so many of the board who made the disastrous Cambridge acquisition decision are still in post so to see two stepping down goes some way to addressing this. I wish them both well as you can't take away from the great job they did in taking Xchanging to the FTSE 250 in 8 years however like with David Andrews as CEO, when you look at their track record in guiding the company since its flotation, you can't help but think they were better suited to those early days than being on the board of a FTSE company. Ken Lever will no doubt have a big say in the new board appointments and hopefully they will only replace the two people with one heavy weight. I look forward with interest to seeing their choice(s).
I think it was Peel Hunt who placed a SELL recommendation on these a while back at 55p with a target price of 30p. XCH subsequently rose to over £1 !!! Well, they're at it again ! Another SELL recommendation in last night's Evening Standard.......target price 60p. I'm not currently holding (hoping to get in soon), but let's hope they get it wrong once again !
Espirito Santo upgrades Xchanging from neutral to buy, target price raised from 110p to 130p
This contract win is a milestone. Firstly the contract is enormous as once again if you convert this into the old way that Xchanging would have reported this then it is a $5.6billion contract which if the extension option is taken up for the full years would end up as $8 billion; this dwarfs the size of the Xchanging procurement contracts with BAE Systems in the UK as well as all other contracts that they have signed. Secondly this follows Xchanging signing last year a procurement contract with BAE Systems Australia. Now BAE Systems may not be the most joined up company globally but it is hard to see them moving their UK contract (due to expire Dec 2012) away from Xchanging now that they are using them to procure their indirect spend across the rest of the world. The HR contract is also up for renewal at this time but frankly who cares? It is a shadow of its former self. The most likely outcome here is that Xchanging will continue to manage the BAE Systems HR data, something they do very well, but BAE Systems will take the operational element of their HR back in house. Thirdly this win both give Xchanging its first foot hold in the US outside the insurance sector and specifically makes them overnight a significant player in the US outsourced procurement market which is juicy market to be in. The market added nearly 10% to Xchanging following the announcement. This share hit £1.13 a couple of months ago. I know this is an enormous 'if' but if you ignore the macro economic factors (and it isn't as ridiculous as it sounds because Xchanging is reasonably insulated) and look at the company specific news that has come out since then you have a serious pricing discrepancy. This is a company that has now renegotiated its banking facilities (which was a source of significant worry), declared it was confident it would hit its full year numbers, who stated their restructuring was ahead of plan, announced a massive procurement contract with L'Oreal and now an even bigger one with BAE Systems. I can't see this share being under £1 by the end of the week and I still can't see it being under £1.50 by the time of the full year result being announced in February.
At least I remembered to buy before posting - normally it heads off without me as I forgot to buy first!!
But I don't care, I always sell too soon, sold enrc today too soon and summat else - now this! 88p to sell now