ItemCurrent PeriodPrevious Period
Period6 Months6 Months
Adjusted Earnings£2m£15m
Adjusted EBITDA
Statutory Profit
Adjusted Profit
Total Debt
Net Debt£89m£37m

Commentary History
Commentary On Staffline Group
Title: Staffline – Results Much Worse Than I Expected.
Company: STAF - Staffline Group
Share Price Then: 120p
Author: Ian Smith
Date: Wed 18 Sep 2019
Comments: The half year results were significantly worse than I had expected, so where does this leave the share price?

The underlying earnings for the full year 2018 were affected massively by adjusting for the Minimum Wage payments, £15m and Reorganisation Costs of £10.6m but the half yearly adjustments for 2018 were roughly half of those 2019, £4.5m rather than £9M.

Debt is much higher that I was expecting, at the time of the placement, net debt was expected to be 2x EBITDA by 31 December 2020. So how has it gone from £63m to £89m?

The Board expects net debt to be c2x EBITDA at the year-end benefiting from the proceeds ofthe equity capital raise and trading in the second half of the year.

The board expects the Group to deliver full year adjusted operating profit (being profits before interest, tax and non-underlying charges) of approximately £20m.

Just how much this adjustment will be is of course unknown, but the current market cap of the company is about £82m so surely we are looking at a P/E of between 4 and 8 at the moment.

Recruitment profit has fallen a bit per branch, down to 7.2% from 7.8% so the overall increase is a result of acquisitions, and People Plus sales have dropped bringing the margins down from 39% to 22%.

Given this I see a strong possibility of a strong share price rise, but the recent share volumes suggest that the price will stagnate again within a few days, once the excitement generated by this announcement dies down, I am also seeing 4% spreads.

So is the company a takeover target, either by a big competitor, or from its larger shareholders?

HRnet Group currently holds 29.9% of the company, this is surely deliberate as they bought 11.7 million shares at a premium to the market price after the recapitalisation, around 190p when the quoted price was around 150p.

They are an Asian recruitment company with revenue of S$428m which is roughly £248m so it would not be an easy to fund offer. However they may make an offer if they had assurances that some of the other larger shareholders would not accept the offer, there are other shareholders with 13.7% (Octopus), 8.5% (Invesco) and 7.3%(L&G).

For someone like Reed or Randstad this may appear to be a cheap way to acquire a lot of business and lose a competitor.

Either I am completely wrong and am misunderstanding the company or the market of this is a bit of a bargain. My main worry is that the group has borrowed to expand and this has left it with a significant amount of debt possibly along with a drop in revenue per branch.
Read Count: 173

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