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Reduced attrition
Key to this has been the rollout of a new digital strategy, aimed at improving worker engagement and reducing employee churn and driving both worker and customer loyalty. As Pullen explains, most of the workers he places are in the 25-35 age bracket and have smart phones, so it has been a natural move for him to launch a new App so that its workers can now provide feedback on their site experience (eg. for instance to report if their safety boots have been ill fitting or lockers were broken). This can be reported back to the client who can then make improvements. An increasing number of the workers now report onto the App daily in this way and Pullen says this alone seems to have helped reduce attrition amongst the workforce by 23% year-on-year.
Staffline has also recently re-launched the group’s front end website, improving it so that it is picked up by more of the search engine queries and incorporating a sophisticated chatbot for booking interviews and this resulted in a record 50,000 direct-to-Staffline website applications in May.
Excitingly, Pullen also talks about expanding the OnSite model for its existing customers into the Benelux market.

Total Business Transformation
The other side of the group, Staffline’s PeoplePlus operation, was established through three strategic acquisitions (Fourstar in April ‘11, Avanti in May ‘14, and A4e in Apr ‘15) to create the UK’s largest provider of the DWP’s Welfare to Work services. Although Staffline successfully ran those programmes for central government and more than extracted its acquisition costs, the division faced significant challenges in 2018.
Under the historical Work Program contracts held, Staffline used to provide people with the training and support required to get them working; in so doing the government would reduce the long-term cost of providing benefits. These Work Programmes were expected to be replaced but instead in its wisdom, they were disbanded. Staffline had been expecting this and fortunately had been managing down its employee and office numbers over the past two years, but if anything, not fast enough.
Last year saw PeoplePlus’ revenues decline 6% to £107m and operating profit fell 21% to £15m as the run-off phase and residual success payments continued to come in.
Meanwhile, Staffline has been using the core skills and training competence it had to move the business into new areas: apprenticeship, learning and skills - in other words PeoplePlus income now derives not from getting people into work but addressing skills gaps. These are totally new areas to those that existed in 2017. As Pullen notes, in each instance it is a “fee for service” type of business and it has 70% of next year’s revenues already contracted. So what does it do?

Market leader in blue collar recruitment
Staffline is now the market leader in UK blue-collar recruitment with an 11% market share. Most of the revenues are derived from supplying blue collar contractors via a wholesale supply relationship. Overall the division had an underlying profit of £24.1m on sales of £1bn in 2017 but 2018 became a bit of a stub year due to the problems. However, a recovery to £22m operating profit is forecast this year.
As Pullen, who took over as chief executive from Hogarth in 2018, notes Staffline’s OnSite model is to undertake the whole of the client’s temporary recruitment process, which is a continuous process essential to keeping plants open and running efficiently.
It will have a dedicated contract manager at each client site as this allows Staffline to provide a better service, eg. the manager at an abattoir will have first hand experience of the environment and can weed out unsuitable employees early on. This all resonated well with the food processing, manufacturing and distribution divisions and Staffline proved highly resilient during past recessions.
Although the Staffing side started off in the food sector, Staffline has diversified as it has grown. The number of OnSite locations jumped very sharply last year when it made six acquisitions, notably Grafton and Vital, and went from 337 to 463 customer sites.
The food sector - whether this is working in a food processing factory or picking fruit in a field - is the largest chunk of this at c.70% of divisional revenues. Retail is around 20% and includes warehouse staff/logistics and HGV drivers and is benefiting from the move to e-commerce, which makes it defensive. Automotive and small manufacturing is the final 10% and is probably the weakest part.

60,300 temps placed at peak times
Overall, Staffline places some 60,300 temps each day during the peak times like Christmas and the summer BBQ season and most of its success boils down to the huge scale of the Staffline blue collar database of candidates, which stands at c. 300,000.
An estimated 75% of the staffing workforce that is deployed are EU migrant workers. The labour market is of course getting tighter as net immigration is falling, partly as a result of Brexit but also due to the weak pound, which reduces the attraction of working in the UK; in such a tight market, there is arguably increased demand for Staffline’s scale and network, which allows it to shift people from site to site and Pullen says that Staffline has not experienced too many issues filling its slots. In a fragmented market, small regional players are the ones who will face a struggle.

First, People Plus has transitioned into new areas such as becoming the largest Apprenticeship Levy service provider and the largest operator of adult education courses in the UK; and also the largest provider of learning in prisons. These are all new, high growth areas that didn’t exist two years ago.
Second, the Staffing side is fundamentally a strong business and has low cyclicality as 70% of the temporary placements are in the food sector. Longstanding customers include Asda, Royal Mail, Morrisons, Muller and Lidl, and new wins last year included Pukka Pies, PepsiCo, Argos, Ocado and Hermes.
Third, post the £41m fundraising the shares are well supported by a robust balance sheet with rapidly reducing debt (£48m or 1.7x net debt/EBITDA by the end of the year) and excellent cash generation as well as decent levels of recurring revenue.

History
You might remember that Staffline has featured before on SCSW although regular readers will recall that I sold the shares from Growth Portfolio 3 in May 2017 at 1225p when I first became a bit concerned about the election (which created political/contract risks for PeoplePlus) - I could never have imagined that the picture would change so soon. Although I sold it out of GP3 then, I think the time has come for GP3 to think about buying the position back. High risk, high reward.
Staffline was established in Nottingham in 1986 and by 2000 had established a network of nine branches focused on providing blue collar workers. In July 2000, there was a buyout backed by ISIS and the previous chief executive Andy Hogarth joined the group as managing director. It was in that year that Staffline opened its first OnSite location with Jacobs Cream Crackers, developing a model for the food services sector where contract managers were placed on a customer’s premises to hire staff directly for that location.

Staffline - After the dust settles...PE of 3.6
136p Epic code: STAF

(Sharewatch) There are two areas of potential within Staffline. One is a blue collar staffing agency, predominantly for the food industry, supplying fruit pickers and staff for ready meal factories and the like. The group is the market leader with an 11% share. The other emerging business is PeoplePlus, which trains apprentices in the retail space, runs adult education courses and also provides training to prisoners. Turnover has grown from nowhere in the past decade to around £1.1bn. But the real attraction is that based on forecast eps of 37.9p this year (fully diluted for extra shares now in issue) and 42.6p next, the PE drops to 3.2. Totally bonkers.
£27m of exceptionals derail the share price
As I describe below, 2019 has turned out to be Staffline’s ‘annus horibillus.’ There was a furore when two months ago it was discovered that the Staffing division had fallen foul of certain national minimum wage rules. For some of the workers it had been treating the five or ten minutes spent changing into required clothing on a worksite or washing at the beginning or end of a workday as non-compensable time. But it would be churlish to say that Staffline was alone in incorrectly interpreting the national minimum wage rules - even John Lewis recently discovered a £35m liability found in its payroll.
At the same time, the company’s other division, PeoplePlus, which used to get most of its income from central government departments (with contracts that were related to getting people into work) was in a state of flux and being restructured.
In the end, Staffline delayed its accounts whilst it had to appoint someone to carry out the National Minimum Wage Audit. It has been a complex self-review process because Staffline had to look back six years and each factory is individual and the layout might have changed over time. It eventually booked a £27.1m one-off exceptional cost in its FY18 results (£15.1m payroll exceptional and £12m exceptional at PeoplePlus for closing surplus offices and reducing headcount) but added that this would cause it to breach its bank covenants. With so much going on the market took fright and Staffline has ended up carrying out a placing and open offer to raise £41m at just 100p, versus the £10+ that the shares were trading at just six months ago.

Scope to become a multi-bagger
Yet listening to chief executive Chris Pullen last month, it is clear that the group faces a huge opportunity. As that message gets through, the share price should move ahead strongly and I see scope for multi-bagging.
After a blowup like this, common sense says there is good reason for caution but I see three reasons for being positive on prospects.

The report was pretty damming imo and rightly so, hence the drop in the share price to £1 when once it was above £13.
If it was not for HRnetgroup buying 25% then the sp would probably have dropped to the low 90p's over the coming year until news and reports came out showing a turn around for the company. There probably is still more bad news to come out too.
That being said, a valuation of £1 or even £1.50 is dirt cheap for a company that is still profit making, forecasting PBT of £21.7m for 2019 and £36.4m for 2020.
The company raised funds which has put STAF in a safe position financially and not likely to break any bank covenant.
Currently it is running on a low PE of just 3 and a NAV of just over £3.

So anyone who bought in at £1 would be in a great position for a long term hold.
But it is not about that any more. This is all about a takeover. Will it happen or not? If not, yes it will likely drift down to £1 again but you have to ask the question, "Why would HRnetgroup pay £1.80 when they could of bought at £1?"

My money is on a buyout. HRnet have the cash to buy them and have a history of acquisition and it was hinted back in January or February that there were looking to expand more, possible into the UK and Australia.

If the buyout does not occur though, this will likely move to £3+ over the course of a couple of years as it is still under valued and profit making.

He will be missed by many, but I'm sure he would like this bb to carry on chatting as much as ever.

All my sympathy to his family and friends. He was an awesome fella.

Posted by franki8 on the otherside.

hxxps://www.businesstimes.com.sg/companies-markets/hrnetgroup-eyes-expansion-into-new-markets

HRnetGroup eyes expansion into new markets

MAINBOARD-listed recruitment firm HRnetGroup is eyeing expansion into Vietnam, the United Kingdom (UK) and Australia, after having completed three acquisitions last year that brought it into new cities such as Suzhou and Jakarta.

It has about S$22million earmarked for expansion plans that are already in the pipeline, and another S$100 million for other opportunities that may arise.

Meanwhile, it is also stepping up on introducing its flexible staffing offering into its existing markets such as those in Malaysia and Shanghai. RecruitFirst Malaysia will commence in the first quarter this year, and RecruitFirst Shanghai, in the second quarter. HRnet will also extend its footprint to Shenzhen in the third quarter, with the establishment of HRnet One Shenzhen.

In a media briefing on Friday, Adeline Sim, executive director of HRnetGroup, said: "Vietnam would be a market that we want to look at. Now that we have added Indonesia, Vietnam makes the most sense next.

"We are also open to looking at the UK and Australia. We are not there, but they could possibly feed us regional contracts. That's really our big draw in being a regional player: We are in 13 cities, which means that when we sign one client in Shanghai, we could be delivering on the project in five or six different cities. Having that regional delivery capability is very important."

In the UK, HRnetGroup currently has a very small stake in recruitment firm Gattaca.

It would probably take time to sort out a buy out. As for GATT, they could buy that as well if they wanted as they have enough funds.

My buy this morning is not showing. I wonder how many other trades have not been listed over this week.

Was looking at the chart yesterday and this is looking good for that breakout having broken out of the downward trend channel and spent some time going sideways, consolidating.
The previous high of 37.7p is the critical point to break, but if it does RWI should be seeing 52p.

The naked Trader bought these at 350p ish and probably sold with stop loss. With IC tipping them too.

Fundamentally these are pretty good. Low pe of 8.6, peg not too bad at 1.15. High return on capital and EPS growing. Debt is £214m but easily manageable. Growing profits, the company looks pretty good.
The downside I see is a hard brexit will hurt the company margins and that is looking likely. With the share price being in decline since for the last month, and a slow start to the year for the company I see investors selling their 1 for 4 placing shares at 240p for a quick profit. Currently the share price is being held up by support and the bottom of an upward trend line so if it does bounce, this should be the spot. But my hunch is it will eventually break that support as investors sell their placing shares and worry how brexit will affect the company. I think a bargain price could well be the next support down at 237p.

http://www.chartupload.com/viewer.php?file=75276313668243981358.png

Synthomer’s (SYNT) first-half results missed analyst forecasts as a mixed trading spell for its performance elastomers (a polymer with elastic properties) brought sales and profits down for the period. Weak demand for the specialist plastics group’s styrene butadiene rubber (SBR) latex in Europe, as well as slow trading in its functional solutions segment, contributed to a difficult first quarter, although sales in the subsequent three months were in advance of the comparable period in 2018. Analysts at Credit Suisse had forecast group sales of £821m, around 8 per cent ahead of the group’s first-half performance. Conditions in the SBR market are expected to remain challenging, although this should be offset by gathering demand for nitriles (specialist organic compounds).

The group continued to build production capacity, a process that should be helped along by the £654m deal to acquire US-based Omnova. The acquisition, which was approved by shareholders last month, will add 13 assets, eight of which are in the US, a country where Synthomer has historically been asset-light.

Working capital rose by £41.4m and held at around 10 per cent of sales. “Typically we see an investment in working capital in H1,” said chief financial officer Stephen Bennett, “because the sales activities in May and June are higher than the sales activity in November and December.” Synthomer also boosts working capital in response to raw material price rises, although these were a bit lower than they were towards the end of last year’s first half, Mr Bennett added.

House broker Numis forecast full-year 2019 pre-tax profits of £141m and EPS of 32.4p, rising to £182.2m and 34.2p in 2020.

IC View
Synthomer’s headline figures weren’t anything to write home about and its Achilles heel, SBR, could conceivably dampen share price growth in the short term. But the company’s return to form towards the end of its first half is promising, and we’re intrigued by Synthomer’s prospects in the US, as well as the benefits of its surging capacity. Buy.

Looks like 38p or there abouts on its way with support broken.
Lack of news about Australian plant sold details should really of been sorted by now. In fact, lack of news all round does not help. It is all very well talking about increasing feedstock supplies but that just plays into the "jam tomorrow" title HYR has earned. What this company needs is actual figures released showing increased feedstock and a move to profit making.
It looks like until then, the share price will drift lower to that next support at 38p. After 38p, there is support at 34p, 30p, 20p and then 15.5p.

A very positive report from sharewatch, being it's primary recommendation for August. Citing the company as a buy and possible multi bagger, being in a strong position after the fund raise. He says the company is not out of the woods yet, but suggests at his price they are worth buying.
His report though, is missing the latest news of HRnetgroup increasing it's holdings to 25% making the company look like it is about to be bid for.

Expect new investors in staffline on Monday buying in.

I'll accept £1:80 but anything above that will be excellent. As Paul's post suggests, even without a bid it now looks very good value.
By having 25% stake, it gives them time to bid at leisure. For all we know they could be talking with STAF now and doing a deal which will only get reported when they agree or it could be a month down the line. I would guess next week or the one after but no one knows for sure. Sooner the better for me but happy to hold here if need be. Any thing under 150p is value for money as demonstrated by HRnet buying at 180p.

Note that HRnet has also recently increased its stake in Gattaca (LON:GATC) to 5.53%.

Gattaca has a market cap of £43.1m last night (at 134p), and Staffline has a market cap of £96.5m. HRnet has a very strong balance sheet, last reported as having S$304.5m net cash as at 31 Mar 2019. That is c.£183m in sterling (1 Singapore dollar = 60 pence). Therefore, HRnet has enough cash on hand to buy both Gattaca and Staffline, if it wishes to.

Stockopedia covers international shares too, in the premium subscription packages. Reviewing the StockReport for HRnet, it looks rather good as a potential investment. I'm struck by how high the operating profit margin is at 16.1%. It is also asset backed, with a PTBV of 2.06, with the bulk of the net assets being net cash. It pays a 4.3% dividend.

Here is the StockRank for HRnet (Singapore);

5d44241a83965HRnet_SR.PNG

My opinion - I like Staffline shares at this level anyway. Having a potential bidder sniffing around, which has just paid 180p for a blocking stake, confirms to me that the shares look very good value. It doesn't make sense to me that the share price is languishing at 140p, so this looks a good opportunity to me.

Gattaca is probably worth a fresh look too.

I wouldn't normally be interested in this sector right now, due to macro uncertainty. However, when valuations reach bombed out levels, and overseas buyers are taking stakes, then it's worth looking at.

Well this confirms what I posted earlier today. There is still a chance a bid might not come but highly likely it will.
Report by analyst Paul Scott from Stockopedia.

https://app.stockopedia.com/content/small-cap-value-report-fri-2-aug-2019-staf-aiea-499761

Staffline (LON:STAF)
Share price: 140p (down c.7% today, at 12:01)
No. shares: 68.9m
Market cap: £96.5m

(at the time of writing, I hold a long position in this share)

New Singapore shareholder - in case you hadn't spotted it, a potentially interesting situation is developing with Staffline (LON:STAF) . You might recall that the share price collapsed due to problems emerging with non-compliance re minimum wage regulations. Plus a general profit warning due to clients taking some staff in house, due to a tight labour market. An emergency fundraising was recently completed at just 100p.

Note that the former CEO, Andy Hogarth, had sold his stake in Jan 2018 at just over 10 times the share price of the recent refinancing, banking £10.3m. Very lucky timing it seems. Another example of why it's often best to sell up, if a key Director/founder dumps their entire stake. Problems often seem to emerge in the following year. Funny that.

I picked up some of these in the 100p placing recently, as the figures looked to me like a survivable financial crisis.

On 22 July, there were 3 successive "holding in company" announcements, showing that A Singapore company called HRnet Group had bought 7.39% of Staffline. A bit of googling showed that HRnet is a Singapore listed staffing company. I'm always interested when a buyer in the same sector (UK or overseas) crops up with a disclosable stake, as it can sometimes be a precursor to a takeover bid.

I've never looked at any Singapore companies before, so this was quite interesting to find out how to go about it. HRnet has an investor relations section on its website, and it all looks very similar to UK listed companies.

Purchases at 180p - this is a much more interesting announcement, on 31 July. HRnet itself put out this RNS, rather than it just being a "holding in company" RNS from the company itself (which came later). So clearly HRnet wanted the world to know that it had increased its stake to 25%. Bear in mind that the share price was 115p on the day that HRnet bought some large blocks of shares, paying 180p per share, a massive 56% premium.

There are 2 ways of looking at this;

1) Paying such a large premium suggests to me that HRnet is at least considering bidding for the whole thing, at 180p or more. That seems to be what usually happens in these situations, where a large premium is paid anyway.

2) This could be a blocking stake - i.e. 25%+ blocks anyone else from buying Staffline. Then HRnet can bide its time, and bid at a later date, or not, as it wishes.

Whatever the outcome, HRnet paying 180p certainly confirms that the shares are undervalued at 140p or less. Hence I've been happy to increase my position here.

Nice play on top slicing and buying back.
Chart wise, it looks a good position to buy back into.
After yesterday's and today's pull back to the top of previous highs. This pull back is a common move when a share breaks out, to pull back to previous highs or other wise know as previous resistance but now acts as support.

HeresHopin, comparing MA with the DEB buy and Fosun with TCG are really completely different situation.
HR have paid a premium of over 50% for their stake. If their intention was just to invest and not make a bid for STAF, then they would of bought at the market price.
HRnetGroup are huge in Asia. They run the same business as Staffline and will want a presence in Europe. They have plenty of acquisition experience which has lead them to become the leading recruitment company within Asia.
They currently are running on £92m profit a year and had cash back in March of £182m, so they can afford to buy Staffline easily.
No company will pay over a 50% premium just for 25% stake in a company unless they intend to bid for the whole company.
HR probably already have the 30% stake, hence only a small buy from them yesterday. The AIM rules are so relaxed that they could easily get away with not reporting their exact holding for several days. I'm guessing STAF will announce a deal next week.

Bond pricing guidance published at 13.5%
BUY
Target price 40p | Published price 15p | *Corporate Client of Liberum

Bloomberg has reported provisional guidance for the $500m bond, due to price next week, at a yield of 13.5%. The rate is above the 12% we modelled and adds $56m of interest costs over the life of the bond, but the far more important impact as far as the shares are concerned is improved certainty around completion of stage 2 finance given the c.$7bn gap
between the current share price and our NPV. Once the bond has been issued and the RCF terms finalised, the company will have fully financed project which we believe should sharply reduce the discount to our 68p NPV.

Interest costs higher, but plenty of available liquidity in RCF
Provisional guidance on bond pricing reported by Bloomberg suggests the company will be close to delivering a book at c.13.5% yield. We had modelled 12% interest rate, so our projected interest costs have increased by $56m on the first bond.
We model subsequent (lower risk bonds), which will be issued to offset draw downs on the $2.5bn RCF, at a 10% interest rate. Given the likely higher rate of the first bond, clearly risk on interest costs is to the upside. If we increase the anticipated interest cost on subsequent bond issues to 11.5% (also + 1.5% on our base case), then our modelled interest costs for the financing to 13mt would increase by $210m from $1.47bn to $1.68bn.

Its worth noting that this increased interest cost can be comfortably absorbed by available facilities. As each incremental $500m bond is issued, the available funds in the RCF only declines by $300m. As a result, the RCF provides an incremental $1bn of liquidity over and above the $524m (P60) contingency.

Interest costs small in the context of the value uplift
In our opinion one of the major reasons for Sirius' discount to NPV (currently 80%) is financing risk. With completion of the high yield bond and the RCF (due before end-September), financing risk is largely eliminated.
Theoretically, we can break down the discount to NPV into three buckets and crudely ascribe weights to them, i.e; financing risk (30%), execution risk (40%) and market risk (30%). If we assume that delivery of the first high yield bond and the RCF removes 90% of the financing risk, then the value uplift from removing it should be in the realm of $2bn, implying a major upcoming re-rating for Sirius shares.

Not a good start to the day. A new lower low.