Blue-collar recruitment specialist Staffline reported a solid performance in its core recruitment business, which meant results in the first half easily beat analysts' expectations. Moreover, even though the shares have risen by a third this year, we still think they are cheap on seven times earnings estimates given the prospects from Welfare to Work contracts, bought with the Eos acquisition in April.
The coalition government's Welfare to Work scheme uses a payment by results model whereby the majority of the cash payment comes, not from finding people work, but keeping them there for 12-26 weeks and beyond. So, despite the Welfare to Work business posting a £400,000 underlying loss in the first half, management expects this to reverse to a profit in the region of £2m next year, driving profits ahead.
Despite this loss, Staffline's adjusted operating profits were flat at £3.8m because its core recruitment business grew revenue by a third to £158m. The division opened 12 new locations at clients' sites, bringing the total to 175 and, despite a tough environment where margins tightened from 10.8 to 9 per cent, underlying operating profits increased from £3.4m to £4.2m.
House broker Liberum forecasts flat current year adjusted pre-tax profits of £10.1m and EPS of 33.4p, rising strongly to £12m and 39p, respectively, next year.
STAFFLINE (STAF) | ||||
|---|---|---|---|---|
| ORD PRICE: | 238p | MARKET VALUE: | £55m | |
| TOUCH: | 233-243p | 12-MONTH HIGH: | 247p | LOW: 163p |
| DIVIDEND YIELD: | 3.1% | PE RATIO: | 9 | |
| NET ASSET VALUE: | 162p* | NET DEBT: | 23% | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 121 | 2.92 | 9.70 | 2.90 |
| 2012 | 164 | 2.75 | 9.50 | 3.10 |
| % change | +36 | -6 | -2 | +7 |
Ex-div: 3 Oct Payment: 9 Nov *Includes intangible assets of £33m, or 145p a share | ||||
