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The market pricing of Xch is perfect if you define perfect pricing as that which matches buyers and sellers. This however is a circular argument and we can all point, albeit most of us with the benefit of hindsight, to companies that were priced completely wrong, sometimes for quite some time, in terms of intrinsic value. I would put Xch in that category at present. The current price matches buyers and sellers because after a long fall, and one third in less than six months is pretty impressive, there is a nervousness to buy and for those who have seen a third of the value of their holding wiped out, a fear of further loss hence a propensity to sell. Of course the latter will have applied all the long of the journey down as stop losses get taken out and selling takes place regardless of the fundamentals and the holder's feelings, which is both the strength and the weakness of a stop loss. There are a number of ways that you can look at the current price and come to the conclusion that it is too low. PE is the obvious one and as I have written before a rise to177.5 equates to a trailing PE of just 15 and I certainly don't think that there is any risk of profits falling this year. Another way to price is to do so historically: Xch announced the AgencyPort (and Total Objects) deal last July and the share price jumped 50p over a short period. The uncertainty while the CMA review went through eroded all that 50p but now that they have confirmed that the deal can go ahead the price is just 120p. If you take the 50p off you get a price of 70p which again is clearly wrong. Now I am not saying that the 50p rise last year post deal was necessarily right but the price then and the price now does point to an inconsistency in the market. The final pointer is the view of the professionals. The analysts (and yes I do generally have a very low opinion of them particularly when for a smallish company like Xch most of them have just left school) have barely moved their price over the past 6 months and have a consensus just shy of £2. They are churning the numbers based on their various models and that is what they come out with as fair value. Now I am not saying that they are inherently right in their valuation (although I think that they are not too far out) but I am interested in the fact that they have not moved their valuation over the past 6 months while the share price has taken a tumble. Ultimately, as PingPong wrote a few posts ago, the share is not loved by the City at the moment and it is hard to rise in that environment. It strikes me that at present, regardless of how good the news is, such as the CMA final clearance, it is broadly ignored by the markets, and regardless how anodyne any news with the slightest smell of risk, it is a prompt for a sell off, i.e. the Q1 update. The AGM is in a couple of weeks, Ken and David need to use it to redress the unduly pessimistic view on Xch although the real catalyst for a rise will be consistent sales
Finally some good news, hopefully this will start to re-rate now we have this big obstacle out of our way.
Anyone understand what's happening here? Seemingly good news, a modest price rise and around £10m seems to have been sold off this morning so far???
pheonixchi Would like some more myself, I have been looking at a long on a spreadbet, but spread not very generous at just over 3p, I will keep an eye on this and get in at some point. Personally for me this must be the bottom or very near, as its already had a significant drop, time will tell and probably quite soon.
PingPong1 Thanks for your reply. I had forgotten about the ex-divi, so that's good. But the CMA gave provisional proposal to the purchase a few weeks back and the shares went up almost 8p as a result. But perhaps the final approval due in late May will do the trick. What I find annoying is that I bought in at 1.28 a short while ago looking for a quick 10% profit (because I don't trust the company) but forgot to put a limit sale on the order. Hence, within four days the price had hit 1.445 but I missed it due to being away and now I'm close to 10% down (divi not counted). Ho hum.... Actually, I might try the same thing again shortly but, then again, should I be chasing a possible falling knife?!!!
The only light I could shed is for todays drop, as its ex-dividend day, paying 2.75p. Other reasons are, we are still waiting for a decision from the Competition and Markets Authority, hopefully that will be resolved next month. For me the main reason is sentiment, the share is just not loved by the city and its recent inconsistency's have scared away PI's. I'm sure the Prof and Moljen could give much better in depth reasons.
The fundamentals of this outfit look sound and it does seem undervalued. Yet, the share price is falling all the time in recent months. Can anyone shed any light? As i have posted before, I do have some pretty good, albeit old, inside knowledge here that I still can't reveal but my stronger and stronger suspicion is that the company is getting it wrong internally somewhere along the line. Go back a few years and it was a shambles with total, blind reliance on procedure and process to do even the tiniest thing. I fear that culture still prevails, or has surfaced again, and thus is holding up any progress. In particular, I wonder - and it is only speculation on my part - if fear of failure through not adhering to process is killing sales? My past knowledge means I can remember when, about five or six years ago, they had a good chance of a very lucrative contract with a gambling company. But they started to behave prissily and the chance was lost. Today that gambling company is huge so fears about associating with it were unfounded and, quite frankly, snobbish. I do fear that as the board wrestle with weightier matters they are not able to see that process, procedure and fear is again taking root. Of course, I could be wrong but from the figures alone I cannot see why the share price has such a downward momentum. Any thoughts out there?
Moljen, Odey it appears is holding 3% actual shares with the other 7% in CFDs. If you take the five biggest shareholders they now hold 110M shares, if you add Odey's 3% you get just 118M, just short of half the total in Xchanging, whereas if you count his CFDs then you get the 6 biggest shareholders with 134M. Ownership is therefore pretty concentrated so you are right that the free shares are limited. I do wonder how Odey and the two others managed to push their shareholdings up so much with so little positive movement in the share price. Today turned out worse than I expected when I said at 0753 that I thought the market would just see the grey in the statement. At the end of the day people are being inconsistent; the drop following full year results was driven by the fact that Xch was low on revenue. It has just said that it is still on target to hit both revenue and profit with the only cloud being that costs it will take a bit longer than anticipated to move Procurement, which is a minnow compared to BPO, back into profit but that the profit will be met from elsewhere in the group, and the share dives. I remarked a few weeks ago that we were out of the irrational fear phase, that may be so but there is still not a lot of confidence in the company and in any statement the majority of good is being overlooked any negative statement picked up on and reacted to in a knee jerk manner.
Prof, If we're wrong then after today's two holding RNS's we're in some very esteemed company now with Odey, Hambro and JP Morgan. Between the 3 they've now tied up a fair amount of the free shares so simple economics says a price rise is due. However it is the stock market so gawd knows!!
I sometimes despair of Xchanging's PR. The key message is that they are still confident of hitting their numbers for the year and achieving pretty much everything they said they would so in 2015 with the exception of Procurement returning to profit in year although even then it will be at run rate profitability by year end. The whole tone of the statement however is grey and so the market is most likely to latch onto the negative not the positive.
Moljen, Interesting to see Odey go above 10%. Given how bearish he is on stocks as a whole at present (I think it was he who was saying we would see a crash to be remembered for 100 years) it is a significant vote of confidence that he is hoovering up so much of Xch. He is a contrarian investor most of the time but often right. Let us hope he is wrong about the big crash and right about the big X. Prof
Looks like we know who was behind those buys now - noticed there were a couple more early Monday. Odey is also involved in one of my s*** or bust miners, KEFI. Nice to see we're ticking along the right direction at long last.
Moljen, Well spotted, I confess that I had not spotted that. I agree that some broker was earning his pennies. Let us hope we are on a new takeoff although I have to say this share never ceases to amaze me by its ability to do something completely different to what I expect. I would have expected the CMA provisional clearance to have been enough for us to see this back in the 160s but it had limited effect (although it did stop the long slide). Perhaps the confirmation of the CMA clearance (no later than 24 May) will have the intended effect.
Assume you caught these little ones going through: 07-Apr-1515:52:31133.00196,286Buy* 132.25133.50261.06kO 07-Apr-1515:52:25133.00151,765Buy* 132.25133.50201.85kO 07-Apr-1515:51:59133.0041,774Buy* 131.25133.5055.56kO They were nicely accumulated without rocking the boat - good work by whoever the buyers broker was! Maybe we can now do the long awaited takeoff back towards the £2 mark!
OK it was only an intraday break through but it happened yesterday for the first time in ages - the share price broke through the 50 day MVA. The 20 day MVA has now levelled out after months of decline and is going to start moving up over the next few days barring some disastrous fall in the share price (unlikely). I would then expect the share price to move through the 50 day MVA over the next month which is always a good sign. The other positive change that shows the returning confidence in the share (or at least that the period of irrational fear is over) is that despite big falls in the major indexes Xch has stayed broadly constant. A few weeks ago the opposite was happening, the indexes were soaring and Xch was still plummeting.
If you look hard enough on the Xchanging website (its not even under News but under RNS) you will find a single release of half a dozen lines, stating, in purely factual prose, that the CMA have given provisional clearance to the Agencyport merger. Now I know that the clearance is provisional and so that puts Xchanging in a slightly difficult position of not wanting to be too triumphant too soon however they should be making a little more of this significant news than a well buried RNS. After all the threat of the merger not being allowed , supported by a slight undershooting on revenues, is what has destroyed a third of the market cap of this company all other key indicators (profits, EPS, PE, margins...) being excellent. Alexandra, I do hope that as Head of Communications you monitor key blogs on Xchanging such as this one, so if you are reading this please try and be a bit more proactive when there is great news such as this. You may like to think that the key players will pick up all this information anyway but some of them do need to be spoon fed. On a separate note, with regards to the ruling being provisional, my analysis is that this would be important had the decision gone against Xchanging as they would now be going back to the CMA with mitigating actions that they would be prepared take in order to get the green light (i.e. selling off the bits of Agencyport that were of concern to the CMA). With the ruling being in Xchanging's favour, however, the period between now and the formal decision can be viewed as a formality as all relevant information has already been submitted.
In short more volume but less price movement than I expected on the announcement of the CMA clearance (albeit provisional). I can't see who would want to be selling this with the merger cleared for just 5% more than it was worth before (or 10% if you assume that the last few days rise have been due to the facts having not been kept as water tight as they could have.) One explanaition might be that the market makers are sat on a lot of Xch shares as they have been buying while bringing the price quickly down and are now selling those back into the market as demand picks up. In any case we are still at share price that is below where it closed on the day after the full year results were announced. Given the merger is pretty much cert that is too low; this is furthermore supported by the still ridiculously low PE (still only a trailing PE of 12). I suspect that the fear that drove this share price down is now behind us and we have plenty more to go on the rise. For those who like charts we are only on the second day of closing above the 20 day moving average; we should break through the 50 day moving average before the end of the week.
massive transactions going through on here atm?
The CMA has issued its provisional findings regarding the Agencyport acquisition which gives clearance for the merger. While the final findings are not due until 24th May it is virtually unthinkable that the merger will not now be allowed to go ahead. This is great news for Xch and will allow them to finalise the integration, including stripping out the remainder of the overlapping functionality and therefore cost, but perhaps more importantly to cease having the distraction of the CMA review that has taken up so much of the senior management's time. The other positive is that had the CMA ruled the merger should not go ahead it would have suggested a serious error of judgement by Xch senior management and Ken Lever's future at the helm would have been in question. It turns out his judgement was sound and he will remain in the chair which is good news for the company provided he can get the Sales engine firing on all cylinders.
Geoff Unwin, the Chairman, has just bought 76,000 shares at 128p so definitely a vote of confidence from the inside!
Well here it is - what looks like a fairly sizeable procurement sale from Xchanging. It would be nice if they had put some numbers into their press release as to what the likely revenue if for Xch. Aliaxis' revenue in 2013 was 2,507M Euros up from 2.377 Euros in 2012 with EBITDA of 304M Euros (2013) up from 299M Euros (2012) so this company is not a minnow. The release does not say when Xch take on the co-sourcing but on the basis that they have already done pilots together it suggests it may be effective immediately, in which case this could make a significant contribution towards Xch's revenue growth for 2015. The response of the market to this annoucement is very muted both in terms of price movement and volumes however lets hope this draws a line under the last 5 months' price decline and we start to see a drift upwards. Now, if we get some positive signs from the CMA update in the next week or so then this share could start to move swiftly. [BELOW TEXT FROM XCHANGING PRESS RELEASE - 17 MAR 15] Xchanging plc, the Business Technology and Services provider, has announced that it has been awarded a new procurement contract by Aliaxis, a leading global manufacturer and distributor of plastic fluid handling systems used in residential and commercial construction, as well as in industrial and public infrastructure applications. Aliaxis employs 16,000 people in over 40 countries. The company has a well-established presence in Europe and North America, and additional operations in Latin and South America, Australasia and Asia. The co-sourcing agreement will see Xchanging Procurement, the third largest procurement services provider globally, manage indirect spend across six countries – Germany, Italy, France, the UK, Spain and the Netherlands – for this new customer. Spend categories to be addressed cover both services (including recruitment, vehicle leasing, maintenance, gas/electricity and catering), and products (ranging from work clothing to packaging).
Last Thursday (12th Mar) we saw a large sale at 123p. I am pleased to see today that Xchanging have notified the regulators that 4 of their PDMRs (Lever, Bauernfeind, Straford, Binns) sold off shares following the vesting of share options. For those not in the know, this is perfectly normal procedure; a director gets a big slug of share option vesting but they have to pay tax on them therefore sell off a chunk of the share to pay that tax. Between the four of them they sold 810,000 shares which is in the ball park of the large scale that we saw on Thu. There is a certain irony that the sale was done at a 3 year low for Xch and one hopes a low that will not be tested by normal day trading. Now Mr Lever had 763,085 share which vested which is a pretty packet. Presumable the Board, looking from the inside and with all the information available to them that we do not have, thinks he is worth it and has done an excellent job. This should be wonderful news for those of us on the outside however given the awful performance of some RemCos in the past I am not sure I would put much value on most RemCo's judgements. Let us hope that the Xch RemCo make such cynicism misplaced.
Thank you for summary - in short looks like a bit overdone but until we get some new financial information we'll not really be able to gauge whether the new strategy is paying off so till then we're in the lap of the gods as insufficient volume (only 15 trades so far today) for anything other than gradual drift. Lets just hope the big boys have now rebalanced and the drift can go the other way :-) For me now I'm going to continue to hold and just keep an eye out.
The other number that give me comfort is the current PE for Xch. We have a historic EPS (2014) of 11.86p which means that at the current share price of 128p the PE is sub 11. If a PE of 15 is used the share price is 177.9 on the trailing EPS and with a PE of 20 the share price is 237.2p. There seems to be little risk of the EPS falling in 2015 even if it takes them an extra year or so to grow the top line, on conventional criteria this seems therefore to be a heavily undervalued share although in the short term that does not mean that fear will and fund risk management policies will not take it lower.
2015 will therefore be the first year to see the full year impact of these revenues so while there will clearly be continued sales effort in Procurement a significant uplift in revenues is already in the bag. Moving the Technology the line from Mr Lever is that the pipeline remains exceptionally strong as none of the opportunities that were there last year went to the competition they are just taking a long time to land; let us therefore hope that 'a long time' does not extend to 2016. Having reviewed the presentation it reassured me that Xch has genuinely repositioned itself in the higher margin space. I suspect not all of this was voluntary as some clients will not have wanted to extend whereas Xch is presenting this all as a strategic or a commercial decision by them. There were a number of questions from the floor around margins for the new tech and procurement services and it was pleasing to hear David Bauernfeind comment that in some cases sales will drop through pretty much all to margins as the investment has been made; we will see but clearly that would be a game changing situation if Xch was able to that on any scale. Ken Lever iterated how the Xch management team has delivered what it committed to in each year since he came in and stated that they will deliver growth in 2015. Remembering that he is a cautious man (aren't all accountants?) this leads me to believe that he has sales up his sleeve already. I was also interested by something that wasn't said, namely that if the CMA ruling goes against them they have a serious problem and that this could impact their ability to deliver their commitments in 2015 (not least because then they will have to focus on selling off Agency Port. I therefore read all the submissions that I could find to the CMA from Xchanging. The CMA concerns seems to be limited to PAS and Xchanging make the case that there is limited overlap between them and AgencyPort in this field, that Lloyds of London should not be viewed as a distinct market to the rest of the world and that Xch has a small share of that overall market, that there is far more competition than the CMA have been led to believer and finally that barriers to entry are low. Now accepting that Xch's submissions are obviously highly subjective I could not help but feel comfortable reading their arguments. The other interesting point related to dates namely that CMA will publish preliminary findings along with any requests for mitigations by mid Mar; that suggests we will get a good feel of where this is going in the next few days.