Member Info for ElProfessor

Well Ping Pong I agree it was a roller coaster of a day. With regards to being just one pence down I think relief is more the word than luck. It certainly looked awful first thing this morning but that was just a knee jerk reaction before people had digested the IMS. KL says the sale of XTB is positive for shareholders in that it brings forward the revenue that would have been earned albeit it also brings forward the drop off in revenue. Interesting to see that they are talking about using the money to pay of the bank loan and to invest in future growth; there is no mention of a pay out to shareholders. The question for me is therefore what will they invest the money in and are they likely to do so wisely. My guess is that it will go into Insurance software development. It seems to me that the strategy of the company is to have that as the core business with technology as an enabler and then procurement and to a lesser extent financial services (they still have FDB and Kedrios) as secondary service lines. If Xch can really embed themselves as the provider that underpins the Insurance market worldwide (a bit like having a copyright on the internet) then they will be onto a real winner and the share price will soar. I think that is what they are trying to do and they are probably in the best position of any company to do so thanks to having been running the Lloyds of London back office since 2001. Success is not guaranteed but as someone with a good slug of shares here I would rather they have a shot and it and reinvest the money from the XTB sale there than give me an exceptional dividend of a few pence per share. In short it it a vote of confidence in KL and DB and I have confidence in them based on their track record over the past couple of years.

Wouldn't expect any earth moving events today. My bet is that the junior MMs who have drawn the short straw of being at work today are not only bored but hungover. They will seek their amusement where they can and see if they can get this share to it's year high on the last day of the year. Either that or it's another game of minesweeper!

The last 12 months (or actually slightly over) have been good to this share and hence to me with it more than doubling. I like what I see of the turnaround and the new conservative approach at Xchanging. It seems the market does too, having said that I reckon there is a lot further to go which is why I continue to hold. I suspect the March announcement (full year 2012) will be strong and that we will see a continued steady rise between now and then in anticipation. Xchanging seem to be developing a pattern for timing their large wins to come out at the same time as full year or quarterly results. I would love to see a real big one announced in March however the fact that the CFO traded just recently means no current lock out for insiders which in turn means they can't presently be finalising anything too big. Still I am confident of £1.50 by next summer. Don't have a clue what was behind the two enormous trades today or the other very large ones. Would be interested to hear if anyone has any insight.

Firstly FIL have announced crossing the 5% threshold of shareholding. That could well have been what has fuelled the recent rise. Secondly BAE Systems have announced that they are not now going to replace Xchanging with Logica as planned, to run their HR. Xchanging have agreed to keep providing the service until Dec 2013. Firstly this will mean a further year of revenue and profit from the deal, secondly it could be BAE will now chose to stay with Xchanging.

Very much a steady as she goes trading update from Xchanging. With two cautious accountants at the helm it does not surprise me that we are not getting any hyperbole from them, when they have a deal signed sealed and delivered we will hear of it not before. They are desperate to keep expectations in check but will, in my opinion, deliver reliably on the numbers that they have 'committed to'. Not sure what Seymour Pierce are going on in downgrading the stock from a hold to a sell, there was nothing in this morning's announcement that could lead to that conclusion.

Jange, thanks for posting that. This is one of the other articles that I was referring to as getting the loss of the BAES HR contract completely out of perspective referring to it as ' a major contract loss' and then 'Xchanging has suspended the dividend while it seeks to recover from the BAE loss'. I come back to the numbers, the contact lost was £15m revenue and £.5m profit. It is irrelevant in financial terms the only impact being symbolic as it was the first contract but then anyone who follows the outsourcing sector will tell you that swapping out to a new supplier at the end of a long contract is nothing unusual as the purchaser seeks to minimise the cost of the deal. It is far better that Xchanging lost the renewal than got it at a ridiculous price which I suspect is what Logica ended up bidding. I would be surprised if they make much margin if any.

Mulled Wine, thanks for flagging up the Tempus view which I had not seen. One think that I find disconcerting, to the extent that it shows the lack of true understanding that a lot of these so called experts have, is that Tempus, like a number of other articles that I have seen, keep referring to the loss of the Baes HR contract as the ' loss of a major deal' and sometimes the Baes procurement deal as a consolation prize. The HR deal whilst once important had become insignificant, it was £15m revenues and £.5m profit.

Tomorrow is results day. Looking back on the past year I see pretty much only positive events and lots of them since the near nadir of 09 Feb 2011. Starting with that day itself, the departure of David Andrews was good news; I am a big fan of David Andrews and believe he did a fantastic job in growing a FTSE 250 company from nothing in the space of 8 years but his skill set was not right for running an established global company, which is what Xchanging had become. He himself acknowledged as much in his FT interview back in December for his latest venture.The move of Ken Lever from CFO to CEO was exactly the right thing to do given the concerns that had been expressed about Xchanging's accounting as his high profile in the accounting world, including chairing the 100 club, meant that he, as much as anybody, would be trusted once he had scrubbed the Xchanging accounts. The question was obviously out there as to whether he could make the transition from CFO to CEO and I think the last year shows the answer is yes. Underpinning him with David Bauernfeind, a long term Xchanging hand who had not just proved a very strong UK CFO but also an excellent able right hand man to the UK MD, was also an excellent choice. The clean out of the Board, who, and it is difficult to argue otherwise , got it horribly wrong in the acquisition of Cambridge, was timely and the departure of Nigel RIch in particular. Personally I like appointment of Geoff Unwins as the new Chairman, an ex CEO rather than an ex CFO which many chairmen are, has helped ensure the three most senior positions at Xchanging are not all accountants/ ex CFOs, and provides Ken Lever with a good mentor in his first CEO role. The ditching of the loss making US business was a great move and getting paid for that Dodo was a masterstroke. The renegotiating of banking arrangements was a great sign both because it provides cover out to 2015 thereby confounding the nay sayers who believed Xchanging was about to go insolvent like ROC and Connaught and because it showed that, having crawled all over the books, the banks were confident enough to lend on a long term basis. The cost cutting has been brutal but targeted with the bloated senior management layers thinned out and the unnecessary real estate such as the Mayfair head office and the Chicago white elephant dispensed with but investment has continued in the right places such as building the new and pioneering Shimoga processing centre. Sales, long the Achilles heal of Xchanging have at last started to role in with the enormous procurement contracts with L'Oreal in Europe and BAES in North America (the true scale somewhat hidden by Xch's new way of accounting for them) and existing key customers have been renewed such as the LME and procurement for BAES UK (HR was lost but it was a minnow). Finally the overall structure of Xch, including the messy shareholdings with Cambridge and AON for XBS, has been simplified. In short: a great year, well done!

Interesting that both Artemis and Morgan Stanley have announced in the past day that they have exceeded 5% shareholding in Xch. That could account for some of the recent rise. Equally interesting though is that it suggests that some of the big boys are no longer frightened senseless by this share. Let us hope that they are well rewarded come next week's results which I believe they wil be.

Firstly welcome to the LSE site. I agree that the news today is excellent. It was always likely that having chosen recently to go with Xch in the US and having chosen last year to go with Xch in Australia that BAES would extend with them in the UK nevertheless is good that this is now confirmed. Ken Lever has pointed out that margins will be lower than before on the renewed deal which is as one would expect on an extension to a 10 year deal. It will be interesting to see if the categories that are in scope remain the same or whether BAES uses this opportunity to change some of them around. 2.35% is a good rise today but I would say this given how much has been made in the past about the risk to Xch's revenues because of this contract ending at the end of this year, it is disappointing not to see a bigger climb today however this does need to be taken agans the backdrop of both the falling FTSE and the near 30% rise in the Xch share price over the past few weeks. With regards to your specific question around next week's results they are a key event as the market has been scared senseless of holding this share since the bring out your dead announcement of 09 Feb 11. As I have written before I think the reality inside the company was never as bad as was assumed and also the actions put in place under the new Lever/Bauernfeind leadership are exactly what was needed. The analyst expectation are all over the shop ranging from the twenties to the fifties. At today's close Xch's cap was £208M, taking a PE of 10 that would suggest that anything upwards of £20M profit being announced a week Thu should increase the share price. I would expect profits to be in £35-45M bracket so see plenty of upside to come. Now the market will not given Xch a PE of 10 because it is still sore from last year but I do think that a very hefty discount is still being applied due to uncertainty over the true health of the company. I would expect the results on 01 Mar to reveal that the company is in significantly better health than is generally believed and the share price to continue to climb over the next few weeks. As I have written before I would anticipate fair value to be upwards of 150. Even arch Xchanging bear Panmure have upgraded their guidance to 90p per share which is the first time in a long while that they have posted ahead of where the price currently stands.

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.

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!

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.

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.

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).

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.

I wrote yesterday in my posting at 1258 that the L'Oreal deal was big but I thought not the biggest as that honour would belong to the United Bisuits deal done in 2004. If the below articl is correct then I was wrong and this is a whopper. [ARTICLE STARTS] French cosmetic giant L'Oréal is to outsource more than €500 million (£439 million) of indirect procurement spend, according to press reports. L’Oréal has awarded a three-and-a-half year procurement co-sourcing contract to Xchanging, the business process and technology services provider and integrator. As part of the contract, Xchanging will manage a significant amount of indirect procurement on behalf of L’Oréal across five countries – France, the UK, Germany, Italy and Spain. The contract runs to 31st December 2014. As part of the deal, Xchanging will assign 40 procurement staff to work in collaboration with the cosmetic company’s in-house purchasing teams across Europe. [ARTICLE ENDS] If the number of £439M is right then over the three and a half years of the contracts this woudl equate to over £1.5Bn in short more than two thirds bigger than the United Biscuits deal. What I therefore find amasing is that this seems to have been glossed over in the coverage of Xchanging since yesterday and also in the share price reaction. In short this looks like the biggest deal Xchanging had done since Deutsch Bank. To me the story at Xchanging in buller point form goes as follows: -new CEO at the helm who appears not to have set a foot wrong -new CEO is on the accouting standard board so will not allow any accounting policies that are even remotely grey -new CFO is a long term Xchanging hand and known to provision for all the worse possible opportunities -confident message from CEO and CFO that Xchanging will hit full year forecast (there is no incentive for them to be saying this if it is not already in the bag as they could blame the previous regime) -banking issue is sorted -overinflated mgmt structure has been addressed with massive cost savings. -real estate footprint has been rationalised including shutting down the Hanvoer Square officer (annual saving c £1m) and the recently opened Chicago white elephant office -all cost associated with above two points have been taken in first half numbers -new 2000 seat processing centre on track to open in Shimoga (India) in Nov which will both drive down costs which have been rising signfiantly in Gurgaon and Mumbai and help retention signicantly -sales appear to be on track with the enormous L'Oreal procurement deal signed and something even bigger looking likely to complete in the US before year end What is there not to like?

Clearly the responsible writers at the FT that usually make that paper a reliable objective read are on leave and they have hired some junior reporter recently let go from the News of the World as cover. What kind of a headline is the FT one that boldly states that Xchanging profits have crashed by 95%. Yes it would survive the court case because factually if you take the first half profit and discount all the exceptional that are what will allow the massive upturn in profit in H2 and in future years then the maths just about stack up. Does it however capture the quintessence of today's results (just used that word so that any NoW reporter has to resort to a dictionary)? Not in the slightest, what they actually said was they expect to meet the full year expectations (and when two accountant recently promoted tell you that, you know they will comfortably exceed this). This therefore smacks of gutter journalism not worthy of the FT that seeks to make an extreme headline in order to drive up readership. As mentioned earlier, today's news when taken in the round is excellent; when the grown ups get back to the news desk from their break I hope that they may start to write something that reflects this.

The third piece of news and the subject of your questions, is the results. On the surface there was nothing earth shattering but if back in Feb you could have fast forwarded to a mid year statement of this nature you would have been delighted. With regards to your question on numbers yes the difference in half year versus full year. (Xchanging typically has a slower first half than second). The profit number contain a lot of exceptional costs which relate primarily to the shedding of head office staff (1/3rd have been taken out) and so will have a positive impact in the second half of the year and obviously will feed straight through to profit and margin in future years. The four point plan is progressing better than expected which is great. An interesting point came out at the analyst presentation with regards to £1.3M of cost being incurred on a Sales opportunity in the US. Firstly £1.3M in half a year suggests that this is an enormous opportunity, secondly David Bauernfeind referred to it being either landed or closed down by the year end. Questions were asked to probe about both size and how many other firms were still in the running, which Ken declined to answer saying he would rather discuss opportunities once they had been signed rather than before. Once again this is a sign of a far more cautious Xchanging, in the past under the previous regime they would have trumpeted this opportunity at this stage. My take is that if Xchanging have pumped £1.3M into pursuing this opportunity and are planning to pump more which means they will have put over £2m into it over the year then they are most likely now the final preferred bidder, that they are pretty confident of winning it and that the deal is massive. For me this is the nugget in the results annoucement. FInally I am suprised by the lacklustre response to the shareprice today, three bits of good Xchanging news and a macro economic piece of good news with the US debt ceiling should see a far higher share price than this. I put this down to the analysts miss reading the understated tone of the annoucement as being that Xchanging are concerned rather than just open and conservative. I would expect the share price to increase over the next week or so as Ken Lever and David Bauernfeind tour the investement community and explain the position in more depth including their future vision for the company. I would expect the share to then increase signifcantly in the autumn as people wake up to the success of the business turn around since Feb combined with the realisation that the situation in Feb was no where near as bad as initially believed.