Stockopedia PAUL SCOTT comments17 Jun 2019 14:11
Staffline (LON:STAF)
An update is given today.
Key points;
Results for FY 12/2018 due out on 27 June 2019 - cutting it fine for the 6 month deadline - due to detailed investigation into compliance with minimum wage regulations
Increasing related provision from £7.9m to £15.1m (a cash cost in 2019) - another example of how the initial assessment of accounting problems is usually the tip of the iceberg
Total exceptional costs for 2018 now £32.6m
Possible breach of bank leverage covenant - will require a waiver
Operating within bank facility limit & expected to continue so
Placing to raise £30m + £7m open offer
No final dividend, which shouldn't come as a surprise to anyone
On the positive side - underlying performance for 2018 in line with expectations, and same for 2019 - EBIT in range of £23-28m, and y/e net debt also expected to be in line (previously guided up sharply)
My view - Placings are normally done on the sly, and the first private investors know about it, is when the deal is announced. It's a terrible system, because information often leaks out, thus creating a false market in the shares.
What should happen is that shares should be suspended when a fundraising of any kind is taking place.
Pre-announcing a placing, as in this case, is an open invitation for traders to short the share. Emergency fundraisings like this can be done (if at all) at a deep discount, as new funders demand their pound of flesh. It all depends on the strength of the broker & its contacts, plus how convincing management are in the meetings that take place with possible funders. So this is a very uncertain situation until the deal is done. In an ideal world, existing institutional shareholders step up and support a fundraising, in order to defend the value of their existing shares.
For me, it's uninvestable until the placing & open offer complete. After that's done, I think it could be worth taking a fresh look at the refinanced company.
It's perfectly reasonable for the bank to require an equity raise, of a similar size to the exceptional costs.
I think shareholders will need to prepare for another potentially ugly day today. Let's hope the broker can get the placing done & dusted quickly - as the price could be potentially very low.
This situation has been incredibly badly handled. It's another example of how an acquisitive group borrowed too much from the bank, hollowed out its balance sheet with goodwill, and then did not have adequate financial strength to deal with an unexpected problem.
The previous CEO timed his exit & shares disposal almost to perfection. That happens quite a lot, doesn't it? Hence why for me, a major/total disposal by Directors, is probably the biggest sell signal you can get.
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