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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.

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.

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.

You can't deny it - since November it has been a pretty unpleasant time to be an Xchanging investor and since the results even more so. I wrote a few days ago that volumes were low so there were no big changes in positions. Having seen the continued slide I have looked again and, as is often the case, by looking elsewhere you seeing something quite different. The following large investment houses have reduced their positions in Xch since the beginning of this year: on 26 Jan Blackrock reduced their holding from 9.7M to under the disclosable threshold, on 28 Jan Artemis went from 36.6M to 30.6M, on 30 Jan, L&G went from 11.7M to 9.7M, on 11 Feb FIL went from 24.6M to 24.4M and on 03 Mar JP Morgan went from 12.2 to under the disclosable threshold. That is some headwind for a share and therefore not surprising that we have seen a drop. The question is why are these fund manager selling. If I had to make a stab at an answer it would be as follows: they have not seen the growth in 2014 that they hoped but equally they are constrained by their in house risk management policies - if a share drops too much they drop it. Having said all that finding out that the big boys had been unwinding their positions made me somewhat nervous so I decided to rematch the 2014 results presentation. Its a 45 mins presentation and I watched it twice all the way through including rewinding to listen more carefully to some bits. The long and short is that I felt a lot more comfortable after watching it and also revisiting some of the historic numbers. Revenue: 2012 - £527.9M 2013 - £526.4M 2014 - £406.8M Profit: 2012 - £50.4M 2013 - £55.5M 2014 - £55.8M Margin: 2012 - 9.5% 2013 - 10.5% 2014 - 13.7% EPS: 2012 - 10.39p 2013 - 10.30p 2014 - 11.86p Leaving revenue aside this is a dream story: profit is up over 10%, margins are up by nearly 50% and EPS is up by 15%. The worries are therefore revenue centric and are exacerbated by the referral of AgencyPort to the CMA. So what did Mr Lever have to say on revenues. Well BPO will have a last year of headwind as two slugs of revenue drop out, meaning £28M will drop away; they have however committed to hold the BPO profit stay although new sales may not fully make up the revenue shortfall. They are however remaining committed to growing the overall revenue in 2015 with the two remaining sectors namely Technology and Procurement. The story in procurement is probably the best as many of the sales required were done in the back end of last year.

Phoenixchi, Thanks for your kind words ref the write up. It sounds like you and I have the same question mark over their sales ability and I would certainly agree with the historic overemphasis on procedure and process. Where our view differ is on whether they will be able to nail sales going forwards. I think they will, both because, with the restructure complete, it is now going to be pretty much their sole focus and secondly because, as mentioned in my post, I think that they have been doing better in Sales than they are being given credit for but that this has been masked by it being numerous smaller deals and by the headwind of large contract dropping off which result in a net fall in revenue. Having said all that Sales has always been their weak spot so you may turn out to be right. Good luck for making the quick to medium 10%, I certainly think you will see within the next 3 months. Best wishes, ElProf

CORRECTION- Sorry a number of typos in my posts. For most it is pretty easy to work out what I meant to say but in Part 2 at the beginning of the last paragraph it should read ' So in short the SHARE PRICE is back where it was 2 years ago' not 'REVENUE'.

Part 3 In short I am confident that the selling is well overdone. The volumes do not see to be larger enough for it to be a fund unwinding its position and I think it is just an over-reaction magnified by this being a small cap stock. I also think that the market is fully pricing in the CMA rejecting the Agency Port acquisition. When the acquisition was announced initially the stock has been languishing at around £1.50 and then initially soared to around £1.65 before slowly climbing to the £1.90 high. If Xchanging does get the green light then I think two things will happen: firstly the stock will jump c10% on the news and secondly it will be the confidence boost that will drive the stock upwards from there to the kind of price the analysts are agreeing on (£2.00). If the acquisition gets the red light then there may be a knee jerk reaction of a small fall on the day but as I say, I think that result is priced in, which is perverse as I judge that to be the least likely outcome. Interestingly the revenue from Agency Port is only £20.5M p.a. so the impact on the Xchanging revenue would be minor and it would generate a cash pile of £60M as Xchanging sold AgencyPort on. The current valuation of Xchanging is £330M which equates to £260M if you take out the £60M and that strikes me as ridiculously cheap for a company with margins at 13.7% and generating £58.8M of profit.

Part 2 ...were accounted for with (where Xchanging was operating a contract as 'Principal' rather than 'Managing Agent' then all of the client's spend was accountable as revenue) and with the Technology division booking as revenue reseller activity (again good for revenue but a killer for margins). In short Xchanging was buying revenue at the cost of profit. Margins of upwards of 13% is a fantastic position to be in because it means that as Xchanging does now grow revenue then a good slug of that will drop into profit. Actually there is a second benefit to flag and that is that Xchanging's restructuring to get to this level of margins has been a costly exercise, as is always the case for such activities, and last year we saw another exceptional related to restructuring, this time of £10.3M, which we will not have this coming year and should therefore see far more cash dropping through as well. The other important part of the Xchanging journey that is now complete has been its reposition from being a BPO company with a bolt on of technology and procurement to being a technology and procurement company with a cash cow legacy of BPO. The big if is now how well it can sell the technology that it has spent a fortune in developing (I am thinking particularly of Xuber) but if it does then much of the cost has been borne so the profit margins will be enormous. This brings me onto the perennial question for Xchanging which is how good are they at selling - the answer to that question is what will determine how successful they are going forwards. It is easy to be overly critical here but we know that they are not hunting the enormous deals that they used to (BAES, DB, Llloyds, United Biscuits, Boots) but are following a deliberate strategy of lots of smaller contracts; these by definition are not headlines grabbers and so will not cause sudden share price spikes. Over the past few years Xchanging have been pulling in these types of contracts but this has been masked by the headwind of the enormous ten year contracts coming to the end of their lives and therefore causing big revenue drop offs. Most of the big deal have now been exited so that headwind will fall away leaving the steady stream of contract wins to generate a growth in revenue. So in short the revenue is back where it was two years ago but the transformation in the company since then is remarkable. Page 44 of the powerpoint back that was used at presentation of full year results (it is easy to find online) is worth looking at as it summarises all that has been done over the past four years and it is pretty impresssive. You mention the purchase of 280,000 by the director Chirag Shah, earlier in the week and I agree that this is a reassuring sign of confidence from inside the company. There is also the purchase back in Sep 14 to consider of 50,000 shares by Geoff Unwin, the Chairman, which is important because he was buying at £1.85.

Moljen, Good to hear from you: I thought that everyone else who had ever been on this board had died! Even more well done to you than when I last wrote it for having crystallised your profit; I did not and am kicking myself for it. So what has actually happened and what is the company worth? Well for once, probably more by luck than judgement, I think the analysts have got it about right with consensus being just shy of £2.00. What we are seeing at the moment is the classic problem of the small cap stock, namely it is not that traded so can swing disproportionately. The stock held up fine to the October announcement of the CMA review of the Agencyport acquisition and even managed to hit a new high but when it was then announced that the acquisition was not going to get the green light at the Phase 1 stage but go to a Phase 2 Acquisition the market seems to have had enough. On top of this there has been the failure of Xchanging to be extended in their worker compensation service in Australia for New South Wales state; the shares reacted particularly badly to this in Nov 14 and fell 4.4% on the day of the announcement but I think the actual damage to the share price has been greater as it has hit confidence. The reality is that this was not a major contract for Xchanging, they were providing just 5% of the worker comp for NSW. NSW had 6 providers and decided to rationalise so got rid of the two smallest, one of which was Xchanging. This was clearly not a service issue which would have been worrying or other reasons. Where I do have a slight worry is over senior management's judgment on the investments that they made ahead of any commitment from the customer; the exceptional write off with the loss of this contract is £7.1M of which over half is for software development, that seems a bit punt to have taken when you were one of the small providers. The reaction to full year results is something that I find strange. The week before the shares had got briefly back up the mid 160s and here we are a couple of week after results at the mid 130s. Actually the results did not herald any bad news and to me were pretty positive for the emphatic statement that the transformation of Xchanging is now complete and for my part I think that they have done exactly what they said they would in 2014. They flagged, this time last year, that 2014 would be a year where a number of big revenue lines would fall away (XHRS, XTB, LME) and that they would therefore have a declining revenue but that they pledged to keep profit constant and then position themselves for growth again in 2015. Low and behold profit has been kept constant (well officially it is up but by so little as to being irrelevant) and with the significant revenue reduction the upside is that margins are now a very respectable 13.5%; if you cast you mind back to the end of the David Andrews era, yes revenues were up in the £700M but this was window dressing from how procurement contacts w

Moljen, It is a difficult one to call! On the one hand the old adage of 'a paper profit is not worth anything' springs to mind which has me agree that we have seen a good rise of late (you mention three months so I guess you bought c150p) however, and I have been tempted to exit some in the 180s, I think we have further to go. Today is the top close (well equal to yesterday) for 4 years and we came within .25p of the top intraday. I can understand that the share might take a breather but I think it will break the 190p shortly and then drive, with fairly little resistance, through 200p. I will exit some at that point, some more at 210p and quite a few more at 220p which is where I predict/ hope we will be by the time full year results are posted in Feb 15. Well done in any case to you for crystallising a profit. Best wishes, El Prof.

Sometimes you get a week that makes you feel good; last week was one of those with the share price up every day and then a meteoric 10% rise on Friday. It makes me almost forget that it rained like mad last night when I was at an outside BBQ and that it is trying to do the same today as I do the garden; besides the plants all needed a good soaking! So what's new? The answer is 'quite a lot'. Let's start with the old adage of 'The trend is your friend' (ignoring of course the opposite adages which in investing there is for any adage, in this case it would be Buffett's 'Be fearful when others are greedy and greedy when others are fearful). SInce the full year results in Feb the trend has been downwards bottoming at 146p. Since late May we saw it stabilise and drift very slightly upwards with the interesting spike to 165p on 19 Jun before then falling back off to where it was before. What this week has done is set a powerful upward trend which I think we will see going on for a while now, although that obviously does not preclude short term fall backs. The second point to make relates to the reason why we saw this drift down post the Feb full year results. The market had driven Xch's share price up over the previous few years since its nadir at sub 50p first because it realised Xch was not going to breach its banking covenants, then because it saw Xch was actually cash generative, then because Xch restructured itself which meant both that people could understand what had been until then an unnecessarily complex business and that costs were slashed thereby making it even more cash generative and finally because it appeared to be returning to growth. The statements that accompanied the Feb full year statement referred to 2014 being a year of consolidation before returning to growth in 2015 with the result that there was a question over where that growth would come from. These two acquisitions go quite some way to answering that with Agency Port Europe alone bringing £18M of revenue and £5m of EBITDA to the table and that is before you take into account the cross selling opportunities and the cost synergies which Xch are quite rightly going to work on. The third point, and I am always conscious when I lean on analysts' target prices that I often write what a low opinion I have of them, is that on Friday Liberum raised its target from 195p to 210p and Investec from 210p to 255p (although you have to remember Investec are the inhouse broker so possibly conflicted) which means consensus has now moved up to 195p across all anaylsts. I am not sure when these two upgrades were done but I think they may been written once the Total Objects deal was known but not the Agency Port in which case we could see a further upgrade (although probably not from Investec who are already rather bullish). I would also expect that early next week we will see a number of the other analysts upgrade their targets and so consensus could well move north of 200p.

Sorry last line got cut off. What I was going to write was 'Think SP near the low'. We saw this last year when the SP hit a high of 150p post results and then drifted down to low 120s i.e. c20%. If you take the high of 186 this time (accepting that we saw an intraday high for a buy of 189.75) then we are now also 20% off. A mixture of sideway and upwards from here on in with hopefully a Q2 results which will outperform market expectations (which I think it will both because I think the mkt is being too pessimistic on what it is hearing and because the tone of the Q1 which stated they expected a stronger H2 sounds to me that they have a good sales pipeline but are being cautious in not over-declaring until they get them over the line.)

HI Ping Pong, Your point regarding the volumes is an important one. Xch is rarely a high volume share, so all it takes to move it strongly either way is a big player taking or unwinding a position. I have no specific insight as to what is going on but if I had to guess I would suggest that a player is unwinding a position having expected more buoyant annual results. The recent poor performance is frustrating rather than worrying. All the news coming out is neutral to good and it it interesting to see the analysts consensus unchanged post results at c 185 with Investec and Espirito Santo both at 200 and upwards ( as you will know I have a pretty low opinion of analysts but it is interesting that while usually they mark down their estimates as a share price falls they are not doing so). The David Andrews model for Xch was a company built on very large Enterprise Partnerships that ran for c 10years. Ken Lever, as well as inheriting a weak balance sheet, came in at a time when most of these big deals were in their twilight years. The ending of the big deals has meant a significant fall in revenues. This has been countered in two ways, one by cutting much of the bloated cost base that existed in Xch as a result of a highly complex structure, and in many cases overpaid, middle to senior management as well as by shutting firstly Hanover Square and then Leadenhall Street. (On the subject of Leadenhall Street, Xch got a lucky break with the £25M to exit their lease early, which meant that the move to the new office, with less staff and better infrastructure has been cash positive from day one and will reduce costs signficantly on an ongoing basis.) Revenue is down but costs are down a lot faster which means profits are up (or underpinned in 2014 when there is a big tail of in revenue from XTB ending) and Xch is actually now a strong cash generator. This leads me onto the second point of how the ending of the large contracts is being countered and that is by using the large amounts of cash generated for significant investment in new technology particularly in the Insurance space. Xch is repositioning itself from a BPO company based on a few large contracts to a Tech Company that also does BPO and with an extensive customer base albeit on smaller contracts. The real strength of the Xch position remains that it is hard wired into the London and therefore Global Insurance market. This market was in the dark ages from a tech point (think large leather contract folders being walked around the city) and Xch has been a key player in moving the market. At first they hit signficant resistance now most people get the need and Xch is in a unique position to continue to make more tech needs apparent and then to satisfy them. So in short: revenue down, costs down even more therefore lots of cash. Cash reinvested in tech to generate new small contracts. Key question is can Xch sell which I think it can now it is focused on smaller deals. Think SP is near t

'There' not 'their'. Back to year one grammar for me!

PingPong, Sorry about the delay in responding, I have not been on the pages for a while. I think that the share prices has taken a bit of a beating because the rise was based on significant optimism around growth and that the results, while excellent for the year just gone, basically said 2014 will be a consolidation year with new sales being required to fill the gap left by the contracts that have already been announced as departing. In other words growth is delayed until 2015. My own view on valuation, even with this delay, is that the share is worth £2 and possibly £2.50. Interestingly the analyst consensus, although I rarely pay too much attention to their views, has remained pretty much unchanged at £1.85. The dividend was at the lower end of what I expected and I worry a little that our two accountants are falling into that classic trap of thinking that it is their money, not the shareholders. If they are able to put it to go use to turbo charge growth then OK but if they fritter it away,as the previous management team did on the Cambridge acquisition, or invest in unwanted technological developments for the insurance market then we have a problem. I believe that they will invest wisely but this is their on my 'risk register' for the company. With regards to the immediate share price movements I think Dan is right that the sell off is now overdone and so would expect a stabilisation before a climb back into the £1.70s perhaps even the early £1.80s. You do also have to bear in mind that the market has fallen c 5% since Xchanging's results so their fall of c 12% is only a beta of 7%.

Ping Pong, I would expect a further rise tomorrow possibly breaking the £2 but I am not convinced it will then stay there. The big question mark for me is what they declare regarding dividends. They will increase them vs last year and I would like to say we will see 4p a share (yield of c2%) which would only cost £10M however I suspect we will see 2.75p.