Questor tips as Buy today1 Feb 2017 14:45
in the Daily Telegraph:
"Buy Staffline: it's growing fast and undervalued
Richard Evans
01 February 2017
Andy Hogarth, chief executive of Staffline, the recruitment firm, certainly believes in clear and ambitious targets.
At the end of 2010 he said he wanted to “treble the treble” by growing the company’s sales and profits over the following three years (the business had already trebled in size since its flotation on Aim 2004).
When he achieved that goal he set himself a new one: to “burst the billion”, by which he meant £1bn in sales, along with profits of £30m, by 2017. The profit element of the target was later increased to £50m following an acquisition.
While City analysts’ forecasts currently fall a little short of the goal, at £930m of sales and £45m of profit on the “Ebitda” measure, it would be rash to write off Mr Hogarth’s chances too early, according to one fund manager who knows him well.
“Andy Hogarth is an individual we have known for 10 years and he has a huge amount of drive, energy and vision,” Ken Wotton, manager of the Wood Street Microcap fund, told Questor.
“He has successfully executed on the vision and has grown the business very materially.
“He has been clear to the markets about his financial targets – it is rare for chief executives to be so explicit – and has then achieved them. So we are big supporters of his and believe there is a good chance that he will ‘burst the billion’ this year. While some of the growth will have to come from acquisitions, Andy has a good record in that respect.”
Staffline operates in two areas: blue-collar recruitment and “employability”, which involves helping unemployed people return to work under government schemes. The former is a big market, worth about £8bn a year across the country and despite its rapid growth Staffline still accounts for just 8pc of it.
“The company is a meaningful player but there is plenty of scope for further growth”, Mr Wotton said.
Although margins in this part of Staffline’s business are relatively low at about 4pc, it is the faster growing of the two divisions and it largely serves non-cyclical parts of the economy – 70pc of revenues come from the food sector (customers include Tesco (Frankfurt: 852647 - news) and Asda) and much of the rest from online retail.
Margins are higher in the “employability” division, at about 15pc, although growth prospects are to some extent limited by the Government’s system of appointing firms to operate return-to-work schemes on a regional basis: it will be hard to increase revenues organically unless the firm wins the contract for a new region.
However, the company is well-placed to win such contracts, with top-quartile performance in achieving the scheme’s goals along with competitiv
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