Dudda

This is exactly what I was looking for! Amazing. Thank you, verysame.
 
Can you help me understand; step by step, how you did this?

Dudda,
 
I put together a short demo.
The quality of the video is low res, I forgot to bump up the quality when I started recording.
 
The technique is the same as in my previous posting, the result is kind of 'dry' though, as I wasn't focusing on the look but on the steps instead.
And it was a little stuttering because I always use hotkeys, whereas in the video I wanted to show what command I was using and I don't remember the menus very well.
 
There are of course different ways to achieve similar results, this is just one of the many.
 
Anyway, the steps should be clear now. Once you get it, you can have fun and experiment.
 
Here's the link:
http://sendvid.com/tq646qbz

You basically want to start with the posterization.
I scaled up your original picture. Although the resolution is low, since the final result is kind of loose as far as edge definition goes, is not a big issue.
 
Then you add a posterize, a grayscale conversion and a level or curve adjustment in order to crush the levels:
 

 
Once you get to that point, you can start having fun.
I added a blur, I used a box blur in this case.

 
At this point, you can group the layers if you want and add a wall texture underneath the group.
The stencil group needs to be multiplied over the wall texture.
I actually preferred to duplicate the group and have one first group with a Soft Light transfer and the top group with the Multiply. By doing so, you can mask both groups and play with the values revealing parts of each group in order to make the overall image less precise.
 
Theoretically, you can stop here or keep playing.
Since it's fun, I kept playing.
 
I've used these brushes to add some more spray feeling to it:
https://www.brusheezy.com/brushes/1371-hi-res-spraypaint-photoshop-brushes-set-one
 
I've used the spray brushes to add a little touch of spray paint and also to mask part of the image.
 

 
And some of these textures:
spray paint texture - Google Search - https://goo.gl/w359u2
 
One last thing.
In the ref you posted it's also noticeable the wall texture over the stencil.
So, adding some wall texture over the image as well might help to get the look closer to the ref.
I liked the grainy quality of the texture in your original ref and I tried to redo it in Photo.
Here's one way to approach it.
On a new layer, add a Perlin Noise:

 
Then add the Emboss:

 
Finally, change the transfer mode to something like hard light or overlay.
You might need to play with the values of the noise and also with the opacity of the noise layer and then, you might need to increase the contrast which you can easily do by adding a level/curve adjustment to the noise layer:
 

 
I admit that a simple wall-like-noisy-texture will do, and actually you can get a more realistic result, but sometimes playing with the filters is fun.
 
Here's the afphoto:
https://www.sendspace.com/file/eyxyp3
 
Hope that helps.
Let me know if you have questions.

As suggested by gdenby, playing with the posterize filter and then adding some texture with the brushes, and also masking out part of the posterized image should take you pretty close:
 

I think the basic reason you got a pixelization is that the image is too small. Too few pixels to begin. And it had lots of .jpg artifacts. I don't know how to resample the image w. AD. I would suppose AP would do that. I tried some medium sized images, about 500 px on a side. Had similar results. Resampled them in GIMP to about 1800 px.
 
After using threshold on the placed resampled image, I had much less pixeliness. Worked better if I placed them rather small, applied the threshold adjustment, and then scaled them up. Got smoother blobs. Oh, and I was using the luminosity blend mode for the threshold adjustment.
 
You might also try posterizing to 2 - 4 levels, and then adding B&
W adjustment. That way some of the similar color contours in the original pic might be preserved.