Xchanging Share Discussion Threads

[simon gordon] 20/10/2010 16:19

He's got eight for XCH:

Key Concerns

1. Weak Free Cash Flow
2. Imprudent Accounting
3. The Efficacy of Restructuring Charges
4. Risk of Write-Down to Goodwill
5. Banking Covenant Risk
6. Customer Risk
7. Level of Accrued and Deferred Income
8. Director Loans

Surprised he didn't list the disapperance of the old CFO.

[simon gordon] 20/10/2010 16:15

30/3/10:

Charles Stanley is baling out of Connaught, the integrated services provider operating in the social housing, environmental, public sector and compliance markets, having identified six key concerns about the company.

'We see six main reasons behind the set back to the shares: 1. Poor cash generation; 2. Low and declining ROCE [return on capital employed] relative to peers; 3. Concern on the capitalisation and magnitude of software expenditure; 4. A £6.8m restructuring charge; 5. The injunction on the £125m five year Norwich contract; and 6. The sudden departure of Mark Davies, the former CEO [chief executive officer]. In our view, these factors are likely to remain a concern for some time going forward,' writes Charles Stanley analyst Matthew Earl.

Having put its stock recommendation under review after the group's announcement of £6.8m restructuring plan in the middle of December the broker has pulled the trigger and switched its rating from 'buy' to 'sell', seeing more attractive opportunities elsewhere in the sector. It has also cuts its 2011 earnings estimate by 20%, 'principally reflecting our more conservative approach to amortisation of the group's software.'

[simon gordon] 20/10/2010 16:13

Paleje,

Is M. Earle the analyst who nailed Connaught whilst at Charles Stanley?

He was the first City analyst to come out very negative on CNT, company got very upset.

This is looking ominous for XCH, could be a very good short with his target of 79p.

Artemis bailed early on CNT, they were the first indicator I saw trouble was brewing in Q4 2009, I see an Artemis fund has been buying XCH since the share fell, though I'm not sure it's the same guy who nailed CNT.

[paleje] 20/10/2010 16:02

Director buying was swaying me too, but then the hit job by Matthew Earl at Matrix on top of other posters' cautionary views. Earl got it right on Connaught they were dodgy, he spotted it, they went bust. Not saying XCH are the same but there's enough reason to stay out for now, for me anyway.

[dnfa1975] 20/10/2010 09:31

very substantial directors buying

am in now, roll on driver

[salpara111] 20/10/2010 09:29

Just watching from the sidelines, interesting scenario developing.
I guess it doesnt help that one of its biggest customers is about to get clobbered in the spending review.

[simon gordon] 20/10/2010 07:14

FT - 20/10/10:

Xchanging, the business services group that counts BAE among its biggest customers, dropped 6.4 per cent to 129½p after Matrix called its accounting "imprudent".

Starting coverage with a "sell" rating and 79p target price, Matrix argued that just 17 per cent of its reported cash level at the interim stage was actually available to the group. It also criticised the company's treatment of debt, deferred revenues and goodwill. Xchanging called the report "fundamentally inaccurate".

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I must do a 100 lines:

Leave XCH alone, it is a can of worms, leave well alone, buy strong charts!

[simon gordon] 19/10/2010 20:14

Yes, it looks that way, according to Matrix the balance sheet is a pandora's box of writedowns, poor cashflow, liabilities, higher than accounted for debt and a banking covenant risk.

XCH needed the Lloyds of London news like a hole in the head.

[envirovision] 19/10/2010 20:04

If they are right, would explain why most of the big shorters never closed out though.

[simon gordon] 19/10/2010 18:44

Matrix target price - 79p.



Are these guys a serious outfit?

UBS who've called XCH very well are fairly relaxed, Matrix are going for armageddon, maybe they just want to get noticed.

[simon gordon] 19/10/2010 11:08

If the new CFO kitchen sinks then a writedown must be top of list. I sold yesterday and will sell my few remaining. In hindsight I should have traded out at 160p resistance, well done W !

[simon gordon] 19/10/2010 11:06

Matrix - 19/10/10:

We see lower growth prospects for Xchanging over the near to medium term relative to consensus and believe that investor concern about the group's expected poor cash performance in FY 2010E is likely to take some time to remedy. The group's approach to its reported net debt is, in our view, imprudent. Our more conservative approach and our view of the risk of a goodwill write-down suggest that these issues are not sufficiently factored into the share price. We initiate coverage of Xchanging with a SELL rating.

Key concerns: Xchanging's shares have significantly fallen since listing – precipitously so since its interims on 2 August 2010. We see eight main reasons behind the sell-off: 1. weak free cash flow; 2. imprudent accounting; 3. concern on the efficacy of restructuring charges; 4. a risk of a goodwill write-down; 5. banking covenant risk; 6. customer risk; 7. the level of deferred income; and 8. Director loan issues. We believe these factors weigh on the group's quality of earnings and will remain concerns for some time.

*Source: Alphaville.

[paleje] 19/10/2010 09:02

Meanwhile, those director buys late Aug/ Sept are a very strong indication that they think they've got things on the mend, they weren't token gestures, serious money.

[salpara111] 19/10/2010 08:41

Well, I am waiting on the sidelines until the new CFO gets his opportunity to kitchen sink all the bad news he wants.

Main problem here is a lack of trust and constant overpromise/underdeliver.

It will take a while for the new CFO to restore the city's trust in their guidance.

[paleje] 18/10/2010 19:56

Sounds a bit murky, maybe the new CFO will tidy things and square up with the market, I'll dither for a while. Thanks very much for comments.

[simon gordon] 18/10/2010 19:06

Dnfa,

I don't get you mate, one minute you are slagging XCH then the next you are ramping it up:

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dnfa1975 - 2 Oct'10 - 15:24 - 335 of 367

profit warnings come in twos and threes. just worry the auditors will put out statement about working in progress tretment and then this will halve

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dnfa1975 - 12 Oct'10 - 14:08 - 338 of 367

if it looks like poo and smells like poo, dont taste it to find out simon

have they changed the auditor yet?

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dnfa1975 - 16 Oct'10 - 15:27 - 358 of 367

lovely jobby 165p i reckon on the stmt, thn 180p

[dnfa1975] 18/10/2010 18:38

all in the price matey, cash rich and a very low single figure multiple mefinketh

[simon gordon] 18/10/2010 17:53

Pal,

There is a dark cloud hanging over the XCH share price which consists of:

~Cambridge acquisition: too expensive and a financial can of worms.
~CFO departed/resigned/fired?
~New CFO.
~Poor guidance by management to the market.

Thus confidence is shot.

The main fear is that the new CFO comes in and kitchen sinks, cuts guidance and lowers expectations. If that happens the share will go nowhere and probably fall. If the new CFO says it's all hunky dory the share will gradually climb back above 160p. Shares on loan haven't fallen a great deal so maybe some are betting on the kitchen sink.

[paleje] 18/10/2010 14:55

I'm new here, not a holder yet, read through the co history and posts on this board, noticed KBC's downgrade and also that NT pulled out last week. Not sure why, surely not just on the back of the Lloyds announcement, which is double edged possible threat to business but also testament to the quality and efficiency of XCH.

I would have thought with global exposure and growing demand for outsourcing, XCH would be well placed for growth. The directors buying nearly 1m shares since Aug adds a fair bit of weight.

Am I missing something or is the market being over cautious?

[simon gordon] 18/10/2010 14:03

I think Lloyds of London is the crown jewel profit center for XCH, the new competitive pressures unleashed could act as a negative sentiment wise.

[simon gordon] 18/10/2010 12:13

Enviro,

KBC had a note out the other day, reduced to Hold from Buy with a target price of 150p. KBC reckon the TU will be a non event with trading conditions "unchanged."

What could be key is if they update the sales pipeline and whether they've got anything in "conclusion" stage.

[envirovision] 18/10/2010 12:06

I wonder if we will see a run up into it?

[simon gordon] 18/10/2010 12:03

Emailed XCH for date of the TU, replied that it will be first week November.

[simon gordon] 18/10/2010 09:11

Insurance Insider - 14/10/10:

Bolt also explained how Lloyd's was effectively ending Xchanging's monopoly as the market's claims service provider, following the success of a 2010 pilot.

"The two key concepts of the pilot - segmentation and choice - are here to stay," he remarked. "The toothpaste is out of the bottle."

Bolt explained that managing agencies will be free to outsource to different service providers but only once they have been approved by Lloyd's after a framework of minimum standards is published next year.

"If you don't meet the service standard, you can't do the service," the former Berkshire Hathaway executive told his audience.

In the interim Xchanging will remain the sole service provider.
The Lloyd's director of performance management also complimented Xchanging, saying that the firm now carries out the technical processing role for certain claims in India and that the "level of this service has never been higher".

He also added that, despite Lloyd's determination to offer choice, Xchanging remains the "logical provider" of many of these services.

"We will hold XCS [Xchanging Claims Services] to standards. Because these standards will be transparent, creating the potential for competition, we know they will be diligent in their efforts to meet them," Bolt exclaimed.

Bolt's proposals build on the early stages of the Claims Transformation Programme and the piloting of a new claims processing methodology this year. The pilot - which is based upon dividing claims by level of complexity and introducing competition between outsourcing providers - has proved a success.

The average end-to-end processing period for claims has been reduced under the pilot from 25 days to 15.7 days.

Bolt also said that there is around £16.3bn in outstanding value claims processed via its central claims system, equivalent to around 80 percent claims by number.

Of these 208,000 open market claims, around 78 percent have an incurred value of less than £100,000. A mere 0.5 percent of the claims have a value of over £5mn, but these make up 35 percent of the incurred total.

Despite the successes of the electronic claims file initiative, 40 percent of all open claims are still on paper files, he added.

[dnfa1975] 18/10/2010 07:28

Great time for Capita to bid for this one imho