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Staffline aims to 'burst a billion' as temp demand soars

Published: 08:19 29 Oct 2015 EDT

engineering-(generic)
Staffline specialises in hiring temporary staff as well as being a trusted partner of government.

The 85% rise in the value of recruiter and employment skills specialist Staffline (LON:STAF) in the year to date is reflective of a business firing on all cylinders.

The five-year chart plots an even more spectacular rise, though some sceptics might wonder whether the company and the share price can continue powering ahead at such a break-neck pace.

Of course it is down to the market to decide on the latter.

But if Staffline, led by chief executive Andy Hogarth, delivers on some pretty ambitious internal targets, then this would more than justify the current stock market rating.

For the uninitiated, Staffline specialises in hiring temporary staff as well as being a trusted partner of government as it rolls out and maintains its welfare-to-work schemes.

In recruiting it works in the temporary sector in areas as diverse as engineering, manufacturing, food production and processing, logistics and agriculture. It has its own small office network, but is mainly based on-site with companies.

One of the hot areas at the moment is HGV drivers. In fact there is a national shortage, and Milestone, an acquisition it made in September, has put Staffline very much on the map in this field.

“It is a big growth area because of the skill shortage. So we can train people if they are car drivers to become truck drivers,” CEO Hogarth explained

There is also a cross-over benefit for the work government work programmes it runs in that it can train and find work for the long-term unemployed.

“These are decent jobs being created, with a good wage and long-term prospects,” Hogarth said.

Acquisitions have been a theme to Staffline’s growth story. It has made three this year, including Diamond earlier this month, which has increased the firm’s footprint in Northern Ireland.

It also bought A4e in April, the training and employability group that was the second-largest provider of the Work Programme, the government scheme for the long-term unemployed.

It paid £34.5mln for the business, or just 2.5 times historic EBITDA, which makes it a snip and instantly and significantly earnings enhancing.

The price tag reflects the fact A4e had what one broker described as “reputation issues” linked to a fraud scandal and payments to the founder.

Hogarth reckons Staffline’s ownership of the business will help with its rehabilitation.

“We work for three different government departments. If we do something wrong it will sully our reputation,” he explained.

“We have a lot of internal controls to make sure we don’t do anything fraudulent. We don’t pressure staff.

“A4e suffered a fall from grace and awful reputation. We solved the problem by acquiring them.”

Hogarth and the Staffline team have an unofficial target to grow revenues organically to £1bn by full-year 2017 from just over £503mln last year. This would help it generate operating profits of £50mln.

The plan is to gain a far greater slice of the recruitment market than it already has. “We have 6% market share currently; I think we can get to 15% before we hit any ceiling,” said Hogarth.

Its strategy also is predicated on bulking up its operating margins from a seasonally weak 3.7% at the end of the first half to around 5% by 2017. Government contracts, not just at home but in countries such as Saudi Arabia, will help in this regard.

Broker Liberum reckons there could be “significant upside” to its current estimates if management successfully delivers on its organic growth plans.

It points out that if Staffline does ‘burst the billion’, this will place the stock on a very reasonable earnings multiple of ten times.

The City firm Berenberg reckons the firm will fall just short of target in 2017, but added it had been very cautious in its assessment of prospects and ability to win all its Work Programme contract renewals with the government.

Currently changing hands for just over £15, the shares, which are forecast to pay a total dividend of around 21p this year, are trading well below Berenberg’s valuation of £16.95 a share.

The bank told investors: “The business has grown in recent years both organically and through M&A, but we believe it can continue to grow given the scope for outsourcing contract wins and acquisitions in a fragmented market.”

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on 06/12/2018