Now proceeding along a new organic growth strategy focussed on its net fee income, operating profit and cash generation, shares in Staffline look attractive, writes Mark Watson-Mitchell.
In the last month readers could have done very well with the 50% rise in the shares of technology staffing group Gattaca.
I consider that they can do just as well with the £106m capitalised Staffline Group (LON:STAF).
35 years old
Set up in Nottingham way back in January 1986, the group gradually built up to its debut on AIM in 2004.
It has subsequently made several acquisitions and folded them into its main framework.
One of the leaders
Today, as one of the top names in recruitment, training and support, it has three main divisions – Staffline Recruitment GB, Staffline Recruitment Ireland and PeoplePlus.
On average, the group supplies around 40,000 staff per day to some 450 client companies.
Staffline Recruitment GB is the UK’s leading provider of flexible blue-collar workers, its clients spread across a massive range of sectors, such as government, supermarkets, driving, logistics, e-retail, agriculture, drinks, food processing and the whole manufacturing industry.
Staffline Recruitment Ireland is quite a diversified agency, with ten branches and fifteen onsite customer locations, serving its clients across some twenty different sectors.
Its PeoplePlus division is similarly well spread. It is a leading adult skills and training provider in the UK, delivering adult education and skills-based employability programmes across the country. It is also the largest independent provider of training for prisoners and ex-offenders.
Major refinancing completed and looking strong
During last year the group implemented a comprehensive restructuring and deep transformation programme.
It has subsequently improved and strengthened its operational, financial and governance processes.
It is now proceeding along a new organic growth strategy focussed upon its net fee income, its operating profit and its cash generation.
Last Thursday the group announced that it had completed its recent £44m fundraising at 50p per share as well as a £90m debt refinancing.
That really is good news and gives its management greater flexibility as it continues with its new expansion strategy.
After the funding there are now 165.8m shares in issue.
The Singapore-based recruitment agency HRnetGroup is the largest equity holder, while Henry Spain Investment Services control 15.17%.
Institutions in the equity include Gresham House, Hargreaves Lansdown, Interactive Investor, AJ Bell, Barclays Bank, Aberdeen Standard, HSDL Stockbrokers and UBS.
2020 finals due soon
In late April the group indicated that its results for the year to end-December 2020 would show revenues of some £928m (£1.06bn) and an underlying operating profit of £4.8m.
At the same time the company gave an update on its first quarter’s trading, showing that the end 2020 momentum had been continued, with all three businesses ahead of budget.
Analyst Joe Brent, at the group’s brokers Liberum Capital, has estimated that actual pre-tax profits for 2020 will come in at £0.8m, worth 4.8p in earnings per share.
Current year and next year profits
Into this year he goes for a major jump to £4.5m pre-tax on £954m of revenues. Reflecting the recent fundraising he estimates 3.7p per share for current year earnings.
Going into next year his estimates are for £978m of revenues, £7.0m of profits and 4.2p per share of earnings.
That really shows quite a profit advancement and one which I can see being extended.
The good news is ready to start flowing
When the 2020 results are published, possibly before the end of June, I would expect a bullish set of comments from the group upon both its current year trading and its prospects going forward.
Then the AGM should be held in July, which could well see another trading update.
The group’s shares touched 82.5p a couple of months ago, ahead of the refinancing, but significantly lower than the 1,450p reached in September 2015.
Just think – the finals, followed by the AGM, then the September interims, they are all potential update occasions to help get the shares moving.
Looking ahead I see the shares, now 64p, ready to recover well in price over the next few months.
I now set a target price of 80p.
(Gattaca (LON:GATC) profile 10.05.21 @ 148p set a Target Price of 185p*, closed Friday night at 226p)