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FY20 EPS reduced 60% due to the dilution from the placing and open offer
The placing and the open offer add 41m shares (including the 7m open offer), which represents 60% dilution to FY20. Given the share dealings are expected to commence on the 16th July, we assume only 5.5 months of the enlarged share capital in FY19. We note that the share placing will not impact the interims given that the placing takes place in H2. FY20 will be the first full year to show the full impact of the share placing on the share count. We reduce our FY19 and FY20 FD EPS from 65.6p and 106.1p to 37.9p and 42.6p. We do not expect a dividend payment in FY19.

A reminder of the long term attractions of the business
Staffline has leadership positions in the provision of Blue Collar workers in the temporary worker market and in apprenticeships. The benefits of the acquisitions made in FY18 should come through in H2 2019 and FY20, as the acquisitions are integrated. The recapitalisation of the business should help Staffline to reverse the insourcing trend at existing customers and win new customers. Employee engagement continues to improve and there is a strong pipeline in skills and training at PeoplePlus.

Revised CY20 P/E of 2.5x, TP 330p from U/R based on a SoTP
We introduce our new TP of 330p (from U/R), based on a SoTP. This equates to a CY20 P/E of 8x. Staffline trades on a revised CY20 P/E of 2.5x.

We reduce our spot net debt estimate from £85m to £48m, or 1.7x EBITDA, following the raise
For FY19, we reduce our spot net debt estimate from £85m (pre-raise) to £48m, following the successful raise. We expect that the £41m raise will reduce net debt/EBITDA from 3.0x to 1.7x, after adjusting for fees. In FY19 we continue to expect £15.1m of cash costs in respect of NMW (National Minimum Wage) and £7.3m of cash exceptionals in respect of advisor fees and PeoplePlus restructuring. The banks have agreed to waive June covenants and to reset the following two
quarters, as covenants are tested on an LTM basis. Staffline should be within the covenant of 2.5x net debt/EBITDA following the raise. This should reduce in FY20 as the business de-levers. We expect FY20 spot net debt of £29m post-raise, or 0.7x net debt/EBITDA. There are £120m of committed facilities which suggests significant headroom.

Changing responsibility for IR35 will impose costs on the industry but Staffline
intends to take a leadership position IR35 is tax legislation that is designed to combat tax avoidance by workers supplying their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used. Such workers are called 'disguised employees' by Her Majesty's Revenue and Customs (HMRC). New rules are set to take effect from FY20. There is no change as such to IR35 tax legislation, what is changing is who is accountable for determining if IR35 applies to a contractor or not and the tax liability in the event of an HMRC investigation. With the current law the onus is on the Personal Service Company (PSC) or Limited Liability Company (LLC) meaning that an individual may choose to take the risk and consider themselves to be a genuine PSC or LLC in order to benefit from the tax advance. Assuming the company isn’t deemed to be a Managed Service
Provider (MSP) under the current rules there is no upstream obligation on either the labour provider or the end hirer in the event of HMRC determining that the PSC or LLC is in fact not a bona fide company and wages should be subject to PAYE. Under the current rules the unpaid PAYE would fall on the PSC/LLC and HMRC will pursue the entity and/or individual but are usually unable to recover this from either the company or the individual. The change passes the responsibility for determining if IR35 applies (an employment status test based on Supervision Direction and Control of working practises) to now rest with the end hirer. Management expects that it will take the leadership position in the industry on the subject and will aim to pass on any additional cost to the end consumer, although this may not happen overnight.

We expect an H1 FD EPS weighting of 27%, vs 43% in FY18
In the proposed placing statement on 27th June, management said that it ‘expects a greater weighting toward the second half of the year than normal due to the transformation in PeoplePlus and the difficulties the Recruitment business has faced in the first half.’ We therefore now expect an H1 EBIT weighting of c.20% vs 42% in FY18. We also introduce our FD EPS estimates for H1 19. Given the difficult trading conditions in the first half of the year we expect H1 19 FD EPS of 10.2p, which
represents an H1 FD EPS weighting of 27% vs. 43% in FY18.

The significant H2 weighting leaves a lot of work to do in a difficult trading environment
The H1 19 FD EPS weighting of 27% leaves a significant amount of work to do in the second half of the year in a difficult trading environment, particularly given the dilution to EPS in H2. We do have concerns over the degree of the weighting to H2, the difficult macro and the impact of the financial concerns on the business. Weak GDP data has not alleviated these concerns. The economy contracted 0.4% in April, and although it rebounded 0.3% in May, June's growth figures will have to be strong to avoid a contraction in Q2 (read here). Growth in the services sector was only 0.1% in April and was flat in May, continuing the longer term slowdown in the services sector that started in mid2018. A difficult market backdrop and the potential departure from the EU in October also add to the uncertainty.

We expect that PeoplePlus returns to profit and that Recruitment sees an uplift from new business, growth of existing customers and cost reductions in H2
We continue to expect EBIT of £25.2m for the FY. We expect PeoplePlus to return £3m of EBIT in H2 as the work programmes end in H1, as restructuring benefits come through and as the new contracts start to contribute. At Recruitment, we assume that H2 19 profits reduce 40% vs H2 18 to £9m, which is consistent with the H1 18 to H1 19 reduction. However, we also assume an uplift in H2 vs H1 atRecruitment, due to a combination of new business, growth of existing customers and cost reduction measures.

XLM is still a growth stock despite the drop in revenues and profits in 2018.

What investors need to understand is the reason for the drop in the share price from it's high of 204p on December 14th 2017.
First off, the company made some poor acquisitions primarily around games on FB and also mobile app and software downloads. These two were then discontinued with just short of $10m exceptional costs.
Secondly, XLM announced back in February a profits warning. It was cutting back on it's Media side of the business which would result in a decrease in revenues and profits.

XLM has been over sold.
The company has cash of $47m.
It has a progressive dividend policy giving approx. 8% yield and paying back over 50% of profits.
Currently it is on it's second share buyback program.
Regular buying of the share by the CEO who owns 2.73% and buying from as high as 188p.
The P/E is just 7, below the Industry average of 9.89.
PEG is high at 5.07% but this reflects the drop in profits.
Book value of XLM is 64p.
The Return of Capital is 15.3% vs Industry of 5.55%.
The Return of Equity is 14.0% vs Industry of 3.52%.
Operating margins are in excess of 20%.
Forecast net profits for 2019 are $27.3m, a third higher than 2018.

What wasn't taken into account during the de-rating of the share price was that the Media side of the business has a lower profit margins that the rest of the company. While descaling the Media side, XLM was then focusing more on it's Publishing side which has far greater profit margins.
In particular, XLM is now focusing on the USA and it's gambling side. The USA is currently going through a transition where the different states are starting to legalise sports betting. 17% of revenues come from US. Currently only 21% of Americans can place a bet online.
XLM are not new to this though. Currently 36% of it's revenue comes from Scandinavia, where they have legalised gambling advertising online. There is still room for growth here too, as not all of XLM's customers have yet converted to online ads.

There is also a Finance side to XLM, which is only about 6% of the company but they are growing this.
So all in all, the company is in way better shape than when it IPO'd, cash rich, profit making, buybacks, high divi and plenty of skin by CEO.

Worth watching this video from back in March.
https://www.piworld.co.uk/2019/03/28/xlmedia-xlm-2018-full-year-results-interview-with-ceo-ory-weihs/

H1 update reveals Platform profitability from Q2
This trading update highlights the growing strength of Bango’s position. The payment processing platform continues to make excellent progress on the back of rapidly growing End User Spend (EUS), its revenues now covering the cash costs.
The cash it generates will fund development of the new exciting data monetisation business, which has made an encouraging start; making early sales while its range of audiences offered expands. In turn, it should feed platform volumes in a virtuous circle to grow the whole group business. Overall, H1 revenue grew 64% YoY to £4.3m, assisted by a full half of Audiens. The full results are out in September.
Platform volume growth is on track: With significant physical goods sales and very strong early growth from new audio/video streaming services, H1 EUS over the Bango Payment Platform grew >110% YoY to c.£465m, continuing the long-term trend. Given this excellent H1 performance, Bango continues to expect >100% YoY EUS growth across 2019. Further out, we believe this rate of EUS growth looks set to continue on the back of the new Google Play, Amazon and Microsoft routes; strong growth across existing connections; and further agreements with major streaming media players, including a major new global merchant agreement signed in the half.

Platform profit: With operational leverage from a fixed cost base, EUS and revenue growth delivered positive EBITDA in Q2, with some of the cash generated to be invested into developing the new data marketing operation, Bango Marketplace.
Marketplace off to a flying start: The offering to app developers is growing as more mobile operators sign up to monetise their customer data through Bango. Just 8 audiences available in February have grown to 55 in June. We are also very
encouraged that initial strong interest has been followed by early sales success.
Audiens: The Customer Data Platform (CDP) acquired in January 2018 is performing very well, with impressive new customers including Experian and Iper (the Italian food giant). The data supply specialists Tamoco and Nextplora are particularly interesting, hinting at a possible future channel approach for the group.
Cash no longer an issue: With Platform now profitable and cash generative from Q2, Bango is able to itself fund the development of Marketplace through to profitability.
Very bright outlook: Platform has built an impressive network of routes, tapping into mobile spending growth from apps, media streaming and even physical goods. Its fixed cost base is covered and the profit, as well as the data, will grow the new
Marketplace operation which is already contributing revenue after its H1 launch.

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