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If Apollo see value at £1.70, the business must be worth much more to Capita given potential synergies. The Capita RNS from Monday states that £1.60 is the max they will go unless a 3rd party comes in (the news about Apollo in the Xch RNS the same day must have come as a shock to them!) but Capita RNS also made clear that they expected to comfortably exceed their return on capital target at £1.60 which suggests they would be willing to go a fair bit higher if necessary, due dilligence permitting.
Capita / Xchanging: insurance premium: The outsourcing group said on Monday it wanted to buy its peer Xchanging primarily for its strength selling to insurers, and has offered a “final” 160p a share for the group. Private equity group Apollo Global Management has pitched 170p, so it is likely Capita will have to dig deeper. The company has indicated that it would finance the equity portion of the deal by issuing new shares and take Xchanging’s £160 million or so of debt and other liabilities on to its own balance sheet. A blowout 220p bid would, allowing for a small discount to the current Capita share price, require only about 7% to be added to the current share count. Such a deal structure would leave Capita with net debt of 2.3 times its forecast earnings before interest, tax, depreciation and amortisation; interest costs are amply covered by operating cash flow. Xchanging has a chequered history and represents a much bigger transaction than Capita’s usual bolt-on fare. But after a recent restructuring, its earnings look set to pick up this year and next. A 30% slide in the share price this year (before the bid news) should provide all the insurance Capita requires.
Just seen this, and certainly cheered me up, as Xch was my largest holding, and this moves my whole portfoli into profit again after a rough few months. Only regret is not topping up even more when it went under £1. Reading the RNS, do I detect a quite confidence that there will be futher movement in the offer price? Also, what chance the bidding was flushes out another buyer or two? Accenture maybe? Xchanging has a very strong position in the London insurance outsourcing market, and there must be significant strategic advantages for other outsourcers to seize that position and cross sell other services. Think I'll sit tight for a bit, despite the temptation to cash in some profits....GLA
Opened 60 up. Amazing
Boom
All I can say is what a very nice morning it is. Wish more of my shares would leap over 50% on a Monday morning !!
Initial trading prices suggest people are pricing in a bidding war which will take us above the current highest bid of 170p which I think is correct. As a shareholder you could not really ask for this to be set up better. There are two bidders with very deep pockets and there is still the possibility of other bidders joining in. I wonder how Liberum are currently feeling about having reduced their guidance price from £2.10 to £1 after the July results.
58% premium takeover. Nice. Well done all.
Very good news. It gives nothing away with regard to my connection with XCH to say that not long after Ken took over I met him and asked him what he would pay, per share, if he were CEO elsewhere and mounting a bid. He wouldn't answer! However, a week later I was with another senior executive and he laughed at Ken's coyness and said that, strictly in his view, 1.60 a share was the right price to start with. Now, that was some time ago and value does seem to have been added since. Hence, £1.70 minimum is surely right. Let's hope this comes off but nothing is certain. I would also be interested what would happen if the markets took a proper, almighty crash in the autumn - I hope they won't but my feeling is that it cant be ruled out with so much strife and general uncertainess everywhere. Would that, I wonder, scupper any possible deal? Interesting times but thank the lord i went in again at 98.5p to more than double my holding from £1.28. Still...I am too long in the tooth to be counting my chickens quite yet!!!
Xchanging have released a statement on their website. It is a section with all the boiler plate that you would expect with an offer so this is obviously serious. It turns out that Capita made a first offer back in early August at 140p which was rejected by the board who told them they were undervaluing the company.They have since made three over offers and are now at 160p. Apollo Capital have far more recently entered an offer at 170 (cash) albeit both offers are conditional. Xchanging have opened up their books to both parties to conduct due diligence and under takeover rules they have until 02 Nov to make an offer. As Xchanging say in their statement there is no guarantee that an offer will be made but to me this is looking good. There are two bidders and they are now combing through Xchanging's books to work out the true value. I am confident that Ken will have made the accounts rock solid and conservative over the past four years. North of £2 would be wonderful and while that may or may not happen I am pretty confident that an offer will be made north of £1.80. Roll on tomorrow morning to see what the market makes of all this.
EMRG - after the rugby and being on the wrong end of Aguero your post is much appreciated! Like the Prof I think a little bidding war will add a bit of spice and take us north of £2
EMRG, Thanks for posting that, I am out of the country so had missed it. It is covered in tomorrow's Sunday Times as well. The price being quoted strikes me as a bit low at 160p although obviously real numbers will be being held close to the chest of the relevant players so this is just a journalist/ commentators punt. They talk about other bidders perhaps joining the fray so let us hope that this happens and there is a bidding war. North of £2 would be nice! Best wishes, Prof.
https://uk.news.yahoo.com/former-boat-race-sponsor-xchanging-eyes-sale-125152747--finance.html#kD4mlQ5 wishing I had followed my gut insinct and bought below £1 arhhhhhhh
Phoenix, Thank you very much. Ref Xch shooting itself in the foot I agree with you that they don't seem to always put the strength of their position across well at Quarterly reporting and their PR is sometimes lacking. I am optimistic that the new CEO will be more 'salesy' but only time will tell. As you said in your post of 31 Jul they will need to gaining market confidence back. Admittedly the market sentiment has already improved since you wrote that but I think it will be a long journey to become a stock market darling. They seem to have moved over the past few weeks from being a dog but there remains a long way to go and that will need both substance and spin. Best wishes, Prof
As with all your posts, El Prof, top stuff - I have to agree with Ping Pong on that. I hope you are right. XCH has a history of shooting itself in the foot so you never be totally confident with them but all things look positive at present. Fingers crossed.
Filshare, You could well be right ref the single buyer. If that is the case then we will see, in the next few days, as they will have to update their shareholding in the company publicly. With regards to the future move 1.25 by the end of the month is definitely possible although where it goes from there will depend a lot on the tone and content of the Q3 statement (albeit Q1 and Q3 are typically kept short.) If positive then I agree 1.70 in a few months is likely. Obviously six months would take us past the full year statement at the end of Feb so that will also have an impact. If the full year is good and they sound upbeat on sales and numbers for the year ahead then we may just break the £2 barrier by next summer. Here's to hoping! Best wishes, Prof.
Given the concentrated nature of other shareholders, and the fairly niche nature of this share, it may just be one buyer driving the hike, but hopefully the rise will draw back some other investors. Given low volumes it is difficult for institutions to build a meaningful stake without moving the Xch sp. I think this has some way to go and am looking for recovery at least back to 1.25 by the end of the month and closer to £1.70 before 6 months is out unless unexpected bad news pops out.
... just before close there was a buy at 111.75p which is only the second time since Nov 14 that Xch has traded above the 100 day average. Clearly when it is the day's close that is above it will be more impressive and when it is the 20 day average that is above it will be even more so. Nevertheless there is an accumulation of positive chart news and of real news over the past couple of weeks. Today's increase is impressive and this time is based on no news. I can only put it down to the winds of change with regards to sentiment. Blow winds, blow!
I do enjoy reading your posts as they are very informative, also you must spend a lot of time reading and studying information on Xch website and other websites. And I am grateful that you are willing to share that hard earned info with us on this bb. I wish we could all second guess the market, even though if we could I doubt very much that we would be here on this bb. Xch has certainly wrong footed us all in the past 12 months, with us wishing we had all sold our holdings at £1.90 (I was going to top slice mine at £2.00). But that is share's for you !!!. Once it went under a £1 I did load up a little bit with buying more shares and spreadbets. As I to now feel very positive about the company. It will never be a barn stormer, but hopefully with good news should now be a nice steady performer.
The 20 day moving average has not been consistently above the 50 day moving average for a year (Jun to Oct 14 in fact). The 20 days is currently 96.58 and the 50 day 99.82. It does not take a mathematical genius to work to that if the share price holds in its current region of 107 then the 20 day average will break though the 50 day average in the next couple of weeks. Given the 100 day is only at 111.78 then with a bit of positive upwards movement in the share price we could see the 20 day average push through that one too in the month or so. I am feeling very positive!
Ping Pong, Thanks for your kind words, glad to hear that you enjoy the posts. Let us hope indeed that what I outlined is correct as it will make us both better off. Having said that I have been pretty much consistently wrong footed by Xch over the past twelve months so please do remember that. Best wishes, Prof
Re share price, lets hope so. Thanks again for some excellent information and valued opinion. Always enjoy reading your posts.
...will be slightly ahead of those suggested at Q2 (which said in line with last year), that margins are continuing to increase and a reiteration, in a confident manner. that 2016 will see a return to growth, could ensure that the recent upswing in the share price continues and that we see the share price trend positive for a good number of months returning it back to where it was last year. I think we may just get that.
Hi Phoenix, I don't think that we will see a repeat of last week with all the gains being given up. Then, a number of bits of good news (new CEO joining the board early, selection as e-Governance service provider for National Council for Teacher Education in India, Emergence win) drove the share price from to a closing high of 104, with 5 days of successive rises before giving up about a third of the increase to settle around the pound level. I can't remember when we last saw 5 successive days or rises for Xchanging but I am pretty sure it was when it was last on the way up to 190p. Yesterday we saw some more good news and while I don't think it is enough yet to make the share price shoot up I think that we are seeing enough for people to lose their loss of confidence even they have not yet gained euphoria for the company. The news yesterday was good however I have a couple of reservations: firstly it suggests a few recent wins, such as Axis Re, however the 20 new wins it refers to covers the period back to the beginning of the year and so some of this is just re-packaging of old news (on the plus side at least(not least the PR function is being a little more proactive), secondly there are no numbers which makes it difficult to quantify what this will do for Xchanging's revenue and bottom line. Given that Ariel Re are adopting all strands of Xuber with it becoming their strategic reinsurance platform and the contract is for 6 years it suggests a pretty big deal, furthermore David Bauernfeind has previously hinted that margins on such new sales would be excellent. The other reason for optimism is that is Axis Re have gone for an end to end Xuber solution it suggests others may follow and that could be very lucrative particularly if Xchanging manage to become the market standard in the same way as Oracle or SAP have. I also find it hard to judge the scale of the deal with NCTE in India for e-governance however any steps into the enormous Indian state bureaucracy are welcome and could be a massive market particularly given Xchanging's excellent links with India (when they moved into Shimoga they became one of the biggest employers in the city and the local University agreed to change some of its course to better teach the skills that Xch needed). For a number of years many people have opined that what was really holding Xch back was its inability to sell. Clearly to sell you have to have product that people want and that it what Ken Lever has been seeking to address during his tenure by repositioning Xch as a technology provider. What we are seeing here suggest that he is being successful in this and as a result beginning to be successful in sales. A confident Q3 statement at the back end of October which says the Procurement division has successfully been integrated into Technology and BPS and it is no longer loss making on a run rate basis, that Sales in all other areas remain ahead of plan, that the full year numbers for profit and revenue.
They did this last week, went up 6p in one day but gave all of it back. Can't work it out unless someone, somewhere is buying up on one day each week. Most welcome, though. Let's hope they retain the uplift this time and move on from there...