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For those contemplating investing in Staffline, here’s a comparison with privately owned companies in the same market. (Last published accounts).
Staffline
T/O. 940m
GP. 83m (8.8%)
Profit before tax. 1.9m (0.2% of turnover)
The Best Connection
T/O. 349m
GP. 44m (12.6%)
PBT. 7.4m (2.1% of turnover)
Blue Arrow
T/O 275m
GP. 33m (12%)
PBT. 4.8m (1.7% of turnover)
My repeated point about Staffline’s hopelessly inadequate GP and delusional management is starkly demonstrated by these comparisons. They did well to hedge some of their borrowing until (I believe) the end of 2024 but I expect they will be in real trouble when they have to borrow at current rates. Unless they have a radical re think of their business - perhaps a complete management clearout, before then.
Dire. Yet again. Unremarked in their self congratulatory presentation is that their appalling margins have slipped again. And their future plans do not address this.
Do they even want to make a profit?
Inconceivable that a near billion pound recruitment agency can fail to deliver any sort of result, year after year. I know of many, far smaller and in the same field, who do extremely well. The board needs replacing with people who actually know the industry, rather than accountants.
I’ve said consistently that this company is a basket case and feel that the recent decline to near the lowest share price in the company’s history could indicate that the deep structural problems that have been papered over are about to erupt. Or maybe investors are just getting fed up with the hopeless and directionless management.
Well, the fan club seem happy.
My reading is that this is, yet again, a desperate return for a £1b company which has shown no sign of addressing its core problem, namely its woeful GP margin of 8%.
No-one operates at, or anywhere near, that pitiful margin amongst their competition. Yes, they are priced as a basket case, but simply turning over money is getting them nowhere. 1% EBITDA in relation to turnover? Appalling.
What was not highlighted in their (in my view disingenuous) statement was that a fractional rise in GP signifies a significant decline in the number of workers supplied, as unskilled wages have risen rapidly.
No signs that I can see that the struggle that has seen them lose 98% of their peak share price is ending any time soon - or possibly ever.
I admire your eternal optimism jamrock.
Being in the same sector as Staffline, I can assure you that a) comparisons with other recruiters are pointless and b) in a lifetime of working in this sector there have never been staff shortages on such a chronic level; nowhere near, in fact. The investment needed in office staff and advertising to try to provide even a reasonable service are soaring. Staffline’s appalling profit margins give no scope to invest in either.
I have no skin in this, but would urge huge caution, as my previous posts explain.
I’ve posted before about why Staffline are likely to collapse. That view is far more likely now interest rates are soaring.
Their GP percentage is so appallingly low that borrowing costs are likely to be the final straw that brings them down. The last two years have been massively helped by the VAT deferral, the extra round of funding and minimal interest rates. Those bonuses have disappeared and I struggle to see how they can survive much longer.
Indeed, Nimrod, that’s what I called it and recent results don’t change my view.
Stand back for a moment. This company turns over not far short of a billion yet can’t make a bean out of that.
Their GP increase year on year is entirely due to a surge in permanent placements. While nice, this may well not be repeatable. The rest of the GP remains beached at just over 8%. You can’t make any sort of return from that. Sorry. And then you have to factor in rising finance costs and the chronic labour shortages in the unskilled sector which, while increasing demand, make satisfying that demand ever more costly and difficult.
This is a model that cannot work without radical change; they are simply turning over money.
As mentioned before, 5% of turnover should hit the bottom line for a well run industrial recruitment agency. You can’t get anywhere on an 8% gross margin.
Jamrock, you may want to bear in mind my comments of a couple of months ago, below.
There may be further bad news on the GP front in that a lot of Staffline’s contracts are signed on a fixed margin basis. They have not historically factored in inflationary rises for the simple fact that there has been no inflation to speak of. So they will be tied into many contracts where wages are soaring but their hourly margin remains the same. I will be looking at where their GP is going very closely when interim results are posted.
5 May '22
As someone who operates in the same field as Staffline, I reckon they are doomed.
They built a huge business by buying turnover at the expense of profit. They deliver a GP of 8% when even their most cut-price competitors operate at 12% minimum. It is not possible to produce meaningful profit at those margins. My own company, much smaller, hits around 16% GP. Of that, around 11% is taken up in overheads (80% of which are staffing costs, and we usually return around 5% of turnover in profits. At 8% GP, we'd be out of business. Given the weighting of staff costs against other overheads, there are few economies of scale in industrial recruitment.
Staffline are not translating their turnover into meaningful profit and I don't see how they ever can, unless, somehow, they achieve a huge increase in GP percentage. They had to be bailed out, twice I believe, by shareholders, after running out of cash, and that will happen again I suspect. Two things that mitigate against them. Firstly, VAT was deferred during the pandemic which would have given them a huge cashflow boost. That has now had to be repaid. Secondly, interest rates are rising and likely to rise further. Their tiny margins will be further compromised.
Additionally, since Brexit, sourcing good unskilled staff has become harder and more labour intensive in many of the geographical areas in which they operate. Most agencies in their field are operating at shortages of 10%-20%.
I have no idea what will happen to shares in the short term but there is a reason why the company has lost 98% of it's peak value. It's a busted flush.
As someone who operates in the same field as Staffline, I reckon they are doomed.
They built a huge business by buying turnover at the expense of profit. They deliver a GP of 8% when even their most cut-price competitors operate at 12% minimum. It is not possible to produce meaningful profit at those margins. My own company, much smaller, hits around 16% GP. Of that, around 11% is taken up in overheads (80% of which are staffing costs, and we usually return around 5% of turnover in profits. At 8% GP, we'd be out of business. Given the weighting of staff costs against other overheads, there are few economies of scale in industrial recruitment.
Staffline are not translating their turnover into meaningful profit and I don't see how they ever can, unless, somehow, they achieve a huge increase in GP percentage. They had to be bailed out, twice I believe, by shareholders, after running out of cash, and that will happen again I suspect. Two things that mitigate against them. Firstly, VAT was deferred during the pandemic which would have given them a huge cashflow boost. That has now had to be repaid. Secondly, interest rates are rising and likely to rise further. Their tiny margins will be further compromised.
Additionally, since Brexit, sourcing good unskilled staff has become harder and more labour intensive in many of the geographical areas in which they operate. Most agencies in their field are operating at shortages of 10%-20%.
I have no idea what will happen to shares in the short term but there is a reason why the company has lost 98% of it's peak value. It's a busted flush.
The acquisition of A4e has, belatedly, given the shares a real boost. Plenty who have posted on here over the past year or so are sitting on a tremendous profit. With the company now diversifying strongly with this purchase, it may be harder to get a handle on what the true price should be. While the election result is favourable in that welfare to work providers can expect no check to their success, is this the time to bale or stick?
As an owner of a (much smaller) recruitment company, I see plenty of potential in Staffline shares, notwithstanding the recent dramatic rise. Not only are they acquiring wisely, but their long established, core outlets will almost certainly be flourishing significantly now that the economy is growing. Longer term, the continuing increase in tax thresholds for the lower paid will weaken the many rivals of Staffline who have forged business models out of appropriating temps' tax relief. Staffline have scrupulously avoided such tactics and, as the amount of tax paid by those on or around minimum wage declines, they will win plenty of business from the countless rogue rivals that will lose their competitive edge. No-one should be surprised if some short term profit taking/market correction occurs but, long-term, these shares are gilt-edged.