Staffline Group (lon:staf)
Staffline – Some Big Share Price Movements, Why?

Staffline Group Financials

ItemCurrent PeriodPrevious Period
Period12 Months12 Months
Adjusted Earnings
Adjusted EBITDA
Statutory Profit(£48m)(£17m)
Adjusted Profit(£1m)£32m
Total Debt
Net Debt£60m£63m

Commentary History
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Staffline Group Share Price
Grade:The Black Grade - Shares That I Think Could Collapse To Nothing Or Suffer A Massive Share Issue.
Title: Staffline – Some Big Share Price Movements, Why?
Company: STAF - Staffline Group
Share Price Then: 21p
Author: Ian Smith
Date: Tue 07 Jul 2020
Comments: Results for the year end Dec 2019 have just been published and they are not wonderful, but I think that was expected.

The recruitment division remains profitable, margins are tight due to competition and within limits the costs are semi fixed, it costs pretty much the same to send 20 or 40 people to the same employer.

UK Recruitment Revenue was down by about £67m from £908m to £841m and Ireland up buy about £40m from £105m to £147m.

People Plus worries me, to my mind they operate in a market that is heavily funded, directly or indirectly with the apprenticeship requirements by the government so I wonder if it’s customers base is resilient enough.

People Plus revenue was down to £88m from £107m in 2018, People Plus returned a gross profit of £40m in 2018 which dropped to £14m in
2019 which seems to be the main reason for group swinging from an operating profit to a loss.

In 2018 there were £47m of exceptional costs and in 2019 another £42m, worryingly in 2019 they were
Amortisation of intangible assets arising on business combinations 2019-£10.9m 2018-11.8
Goodwill impairment 2019-£22.3m, 2018-£1.4m, Recruitment GB £14.3m and PeoplePlus £8.0m

Which seems to me to mean that they bought businesses that weren’t worth what they paid/valued them at.

Oddly the annual reports don’t include Goodwill and Intangible assess, but in 2018 the group spent £50m on acquisitions so it looks like these costs are significantly written off and they are non cash entries.

The company started 2019 with £63m of debt and ended it with £59m despite a £38m share issue which was supposed to massively reduce debt.

The group still has £103m of financing facilities up unto July 2022,
                                    Was     Now
Revolving Credit facility ("RCF") £78.2m £30.0m
Overdraft £25.0m zero
Receivables Finance Facility zero £73.2m
Part of this deal is No dividends to be declared by the Company until July 2022 and Restrictions on new material share, business and asset acquisitions until July 2022.

The RFF is more of a secured loan against invoices than the RCF although both probably have the same purpose in this case, pay staff before the company gets paid.

It also appears that the group will use the cash made available by the delayed VAT payment option as working capital, possibly causing an issue 31 March 2021. The Directors are working on options to mitigate this liquidity risk, including the implementation of a turnaround plan.

The Group strategic priorities include strengthening the balance sheet and reducing debt, this seems to me that a sale of something, People Plus or some agency branches or another share issue may be on the cards.

With a market cap of only £21m and even if a share issue is possible, it would have to be massively diluting and coming only a year or so after the last one it is hard to see who the buyer would be.

What seems more likely to me is that group will decide to be either a recruitment agency or a training company, so all the agency branches will be sold or People Plus.

All of the 2019 numbers relate to a pre covid 19 business environment, so it is hard to see how 2020 will not be anything other than another loss making year, but the loses will be real money not accounting adjustments of real money spent in the past.

With an average volume of around 370,000 shares or £100k a day volatility is to be expected.
Read Count: 361/13152

Buy/No Buy In A Nutshell
NegativesToo much debt and they have already done a share issue to fix that along with a recent history of issues with financial management
PositivesAn attractive takeover target at a low enough price.
Initial Review Price26p
Last Review Price26p
Last Review Date21-Aug-2020
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