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Staffline's slide a temporary problem, Liberum asserts

A look at the day's major movers, including Footasylum, Enteq, Accrol, Codemasters and Sopheon
Person wearing trainers
Down at heel

A trading update from recruiter Staffline Group PLC (LON:STAF) proved to be anything but the job.

Underlying trading was fine and dandy but the market seemed alarmed by increased debt and talk of significant one-off costs that have been incurred in 2018 as part of the group’s PeoplePlus division weaning itself off reliance on the Department for Work and Pensions’ Work Programme.

No further exceptional costs relating to the end of the Work Programme are expected in 2019.

The company said its Recruitment division has continued to grow, with the acquisitions completed during the year performing ahead of management expectations.

It added that its PeoplePlus division also made good progress in the year.

House broker Liberum left its fiscal 2019 (FY19) underlying earnings (EBIT) forecasts unchanged.

Staffline has stated that it now expects an additional exceptional charge of £15m resulting in a £20m charge for the FY. This relates to the extensive restructuring of PeoplePlus as it moves to being a skills and training organisation. The exceptional is a one-off,” the broker said.

“We increase our year-end spot net debt from £27mln to £63mln (1.4x EBITDA), principally due to acquisitions and exceptionals. The key drivers of the £26mln increase since the £37mln at the interims are the £18mln on Passionate About People, £7mln of cash exceptionals (£5mln higher than previously expected) and £6mln of capex (£1mln higher than previously expected),” it added.

“The monthly average net debt was £41mln for the year, lower than the year-end number as acquisitions were made during the course of the year and there was a seasonal spike in working capital in the busy period in December,” Liberum said.

The shares were down 90p at 1,160p. Liberum has a price target of 1,320p, based on a sum-of-the-parts calculation.

1.15pm: Investors not mad for Footasylum

Shares in footwear flogger Footasylum PLC (LON:FOOT) floundered after a trading update revealed the retailer’s margins are under pressure.

Total revenue in the final 18 weeks of 2018 was up 14% year-on-year to £102.3mln, driven by a 28% increase in online sales.

READ Footasylum gets a kicking as it downgrades full year margin forecasts

Promotional activity and discounting across the retail sector were higher than anticipated during the period, with the result that Footasylum's had top cut prices and run more special offers to get shot of stock.

Consequently, while the company has sustained its revenue growth across all channels, gross margin has been lower than previously expected for the period, Footasylum said.

The upshot is that while Footasylum continues to expect to report fiscal 2019 revenue that is in line with consensus expectations, the gross margin is now expected to be lower than current consensus expectations.

Liberum recommends holding on to the shares, as well it might given it has a 30p share price target.

“Online continues to be the main engine of growth and indications are that the new stores (look & feel) as well as recent upsizes have performed well. The excess inventory that has negatively impacted margins in the current financial year has now been cleared leaving a much cleaner position as we enter into FY19/20E,” the broker said.

“Action on costs is being taken but this should not impede growth or the strategic outlook for the group. There has been significant investment to support growth over the last 18 months and any indications that a recovery in margins is possible in the upcoming year should be seen positively. While the cuts today are disappointing we would hope that we have passed the nadir of bad news,” it added.

12.15pm: Enteq gaining market share

Enteq Upstream plc (LON:NTQ), the provider of “measurement while drilling” systems to the energy industry, surged on the back of a sales win.

The company said it had made recent gains in its international market share through the sale of a second kit to a mainland Europe based customer, for operations in both Hungary and Iceland, the latter being a geothermal application.

The delivery of this kit has taken the total sales value to this new customer to around US$0.7mln during the current financial year.

Wait, as the comedian, Jimmy Cricket used to say; there’s more.

Enteq has recently made deliveries of both its electronic sensors and mechanical components, worth roughly US$0.3mln, to a new China-based partner that provides drilling services and support in both China and Canada.

In North America, the Rocky Mountain oil-producing regions have seen an increase of about 20 drilling rigs in the second half of 2018, with additional growth expected in 2019. Through innovative equipment and kit rental supply programmes, Enteq has enabled its customers based in this region to capture nearly 50% of this rig growth, the company boasted.

"The market share gains in North America validates Enteq's focus on developing innovative commercial structures that address the specific needs of new industry entrants,” said Martin Perry, the chief executive officer of Enteq Upstream.

Shares in Enteq were up 18.4%.

10.30am: Accrol takes a pounding

Accrol Group PLC (LON:ACRL) is no stranger to profit warnings and given it makes toilet rolls, journalists and headline writers are keen to cover them.

On Proactive’s news service in the past, we’ve used “down the pan” and “hit the fan” as somewhat unsavoury similes for the share price performance and in the interests of good taste we stopped short this morning of amending the word Brexit to something a bit more biological in our headline.

READ Accrol Group warns of Brexit hit as weak pound undermines operational ‘transformation’

Continuing weakness in the pound, brought on largely by Brexit uncertainty, has put a dent in the business of the Lancashire based tissue firm.

The shares tanked, losing more than a third of their value, as the company said the negative impact of rising input costs and foreign exchange on the group's profitability in the first half of the year to 30 April 2019 amounted to around £5mln.

Should the current US dollar exchange rate and high tissue prices prevail, the board estimates a further impact on input costs in the second half of the year of around £3.5mln.

Full-year adjusted underlying earnings (EBITDA) are expected to be in the region of £1mln.

As is usually the way with struggling companies, some drastic surgery has been performed on the business in an attempt to cut overheads and these measures are expected to result in up to £8mln of exceptional costs in the current fiscal year.

On a positive note, the fundamentals of the business are now stronger, management claimed.

The operational restructuring conducted during the year is delivering like-for-like sales at record levels (excluding discontinued Away From Home revenue). Given this growth, the directors believe that group revenue in fiscal 2019 will increase by around 8%, which is broadly in line with market forecasts, to around.£126mln.

The group's fiscal 2020 (FY20) results will include the full annualised benefit of the structural cost savings achieved in the current fiscal year, so the directors believe the company is well placed to achieve the level of monthly margins from the start of FY20 that it had hoped to achieve by the end of calendar 2018 (assuming today's levels of currency rates and input costs).

Given the company’s track record of profit warnings in recent times – it has not been flushed with success – shareholders would be forgiven for taking that optimistic viewpoint with a pinch of salt – especially if Britain opts for a “no deal” Brexit.

9.30am: Codemasters and Sopheon surge after unveiling new deals

Computer games developer Codemasters Group Holdings PLC (LON:CDM) shares surged in early trading Tuesday after it upgraded its earnings forecasts.

The company, which specialises in motor racing games, has signed a mobile game development deal with Chinese internet and online gaming firm NetEase Inc (NASDAQ:NTES).

Under the terms of the joint development agreement, NetEase would commit an internal mobile development team, apply its proven knowledge of mobile game design, and take on all operational and publishing activities while Codemasters would provide assistance with its proprietary technology, resources and existing game assets.

READ Codemasters surges as it ups earnings forecasts on back of development partnership with Chinese firm

Broker Liberum, which rates the shares a ‘buy’ and has a 310p target price, noted that it is the second key partnership with NetEase.

Shares in Codemasters currently trade at 181.5p, up 20p on the day.

“This deal highlights the value of Codemasters know-how, gaming engine and IP [intellectual property], contributes $8m of revenue over the first three years, but more importantly the option value and profit share upside from a major future mobile game launch by NetEase,” the broker said, as it announced an increase in its full-year 2019 profit forecast by 10%.

“This leaves the shares on a P/E [price/earnings ratio] of 13x, a major discount to the sector, and in our view materially undervalued in the context of the company's leading gaming IP and the implied opportunities for further major partnerships and deals,” Liberum said.

Elsewhere in the software world, Sopheon PLC (LON:SPE) is partnering with global confectioner The Hershey Company (NYSE:HSY) to support digital transformation of Hershey's product innovation portfolios.

Sopheon’s shares were up 6% at 1,325p.

The company said it would help The Hershey Company integrate knowledge discovery, insights and learning for better understanding and decision making in response to business opportunities and challenges.

Proactive news headlines:

Landore Resources Ltd (LON:LND) has boosted the gold resource at the BAM East deposit on its Junior Lake property in Ontario by 51% to 951,000 ounces. The average grade is 1.03 grams per tonne.

StatPro Group PLC (LON:SOG) has secured a deal with a large UK investment manager to provide its Revolution Data service. The software firm said the three-year contract, carrying a minimum value of £2.35mln, will involve the investment manager using the service to manage multi-asset risk and fixed income investments.

Energy storage and clean fuel company, ITM Power PLC (LON:ITM) has significantly strengthened its capability to deliver larger industrial scale projects. In its results statement for the six months to the end of October, the company said the period was one of major transition as it continued its evolution from a research-focused company to one capable of manufacturing the equipment its expanding list of industrial partners require.

Echo Energy Plc (LON:ECHO) confirmed that, further to its announcement of 11 December 2018, the equipment required for the stimulation of the EMS-1001 well, drilled in June 2018 on the explorer's Fracción C licence, onshore Argentina, has now arrived on site and that stimulation operations have commenced.

Sativa Investments PLC (LON:SATI), the NEX-based medical cannabis investor, has unveiled plans to become a first-mover seed-to-consumer business in the UK. Its blue-print will require at least £12mln of funding – which would cover the cost of a glasshouse operation in Wiltshire – and probably more if it is to fully bankroll its ambitious blue-print.

Gaming Realms PLC (LON:GMR) has signed a three-year sublicensing deal with gambling products firm Scientific Games Digital to develop a Slingo game using the Monopoly brand. Under the terms of the agreement, Gaming Realms will develop and publish the Slingo Monopoly game, scheduled for launch in early 2019, across its existing Slingo B2C and B2B channels as well as through its distribution channel of operators and third-party sites.

RM Secured Direct Lending PLC (LON:RMDL) said it has deployed all cash available for investment, during the month of December, and has subsequently utilised £2.40mln of its £10mln Revolving Credit Facility (RCF). The FTSE Fledgling firm, which specialises in providing tailored debt solutions, said the cash has been deployed across four new transactions in the following sectors: telecommunications equipment, receivables & asset financing and real estate.

Kingswood Holdings Limited (LON:KWG) has announced the appointment of Patrick Goulding as group finance director. The wealth management group, which trades as KW Wealth, said Goulding will lead the finance function as well as overseeing the group's operations.

APQ Global Limited (LON:APQ) said it has issued a total of 26,578 ordinary shares to employees as part of a management share-based compensation scheme, including to Bart Turtelboom, its chief executive officer, who has received 23,366 Ordinary Shares. The group added that, following this issue, Turtelboom is interested in 22,098,463 ordinary shares representing 28.27% of APQ’s issued share capital.

Thor Mining PLC (LON:THR) (ASX:THR) has advised that an updated presentation for shareholders has been uploaded to the company's website.


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