When a company promises to treble its profits in five years, you would be forgiven for taking that with a large pinch of salt. But in Staffline's (STAF) case, the management's track record suggests this is a promise to be taken seriously. The training and recruitment company has trebled in size twice already since its 2004 listing and is targeting a near trebling of 2012 underlying profit before tax to £30m by 2017. This target is not predicated on an economic recovery; nor does it assume growth by acquisition. Rather, the company has identified opportunities for growth and is positioning itself to be in the right place at the right time.
- Ambitious five-year growth plan to treble profits by 2017
- Well-placed to win more Welfare to Work contracts
- Almost debt free
- PE ratio attractive versus larger peers
- Dividend yield relatively low
- Potential disruption from unions or regulatory change
Staffline's core business is the supply of mainly blue-collar workers through its OnSite model, which accounts for 85 per cent of total revenues. The OnSite model, in which Staffline has a team based at its clients' premises, allows Staffline to build an embedded position that generates plenty of repeat business. Staffline currently supplies staff to the distribution centres of every major high street supermarket chain, many leading UK manufacturers and is one of the UK's largest suppliers of food industry staff.
But while the OnSite model provides the bread and butter, a growing presence in other, newer activities provides the jam. The acquisition in 2011 of Eos took Staffline into the Welfare to Work segment; a government scheme that helps the long-term unemployed back into the job market. Eos, whose contract covers Birmingham, Solihull and the Black Country, has been ranked the best performing contract of the 40 work programme contracts across the UK. And the contract is now cash positive with the division moving into profit during the first half. Given Eos's strong performance on its current contract, it looks well-placed to grab further work from underperforming peers in this space.
STAFFLINE (STAF) | ||||
|---|---|---|---|---|
| ORD PRICE: | 590p | MARKET VALUE: | £149m | |
| TOUCH: | 581-595p | 12-MONTH HIGH: | 597p | LOW: 223p |
| FORWARD DIVIDEND YIELD: | 1.7% | FORWARD PE RATIO: | 15 | |
| NET ASSET VALUE: | 169p* | NET DEBT: | 6% | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 206 | 6.98 | 23.7 | 6.2 |
| 2011 | 288 | 7.53 | 25.9 | 7.1 |
| 2012 | 367 | 8.52 | 29.8 | 8.1 |
| 2013* | 385 | 7.70 | 26.4 | 9.5 |
| 2014* | 415 | 11.8 | 40.3 | 10.3 |
| % change | +8 | +53 | +53 | +8 |
Normal market size:1,000 Matched bargain trading Beta:0.23 *Includes intangible assets of £33.1m, or 131p a share **Liberum Capital forecasts | ||||
Other irons in the fire include a growing presence in HGV driver training, where Staffline hopes to help fill a skills shortage, and a push into the white-collar job market on the back of last year's acquisition of Select Recruitment. Gearing is low with a debt-free position looking likely by the year end, so Staffline has the financial flexibility to undertake further bolt-ons if it can find appropriate targets.
Staffline's activities mean that it is affected by employment regulations. But tougher employment rules to address issues such as people trafficking generally benefit Staffline as they drive less scrupulous players out. The company is also potentially vulnerable to disruption from union actions such as strikes at its big customers. This is more of a wild card, although strikes can mean Staffline is given work finding temporary staff to cover during the strike.
