Christmas Stock Picks: Staffline

Shares in Staffline, the Nottingham-based recruitment venture bossed by charismatic CEO Andy Hogarth, have regained lost ground and should have further to go come the upturn.

Staffline has a sturdy core business supplying ‘blue-collar’ temps to the resolutely defensive food sector, as well as less resilient sectors such as logistics, manufacturing and automotive. Its service is fully outsourced and involves managing clients’ temporary recruitment needs on their premises through its ‘OnSite’ locations.

In its latest upbeat trading missive, Staffline said 2009 earnings would beat forecasts, thanks to cost cutting, new business wins and the successful integration of bolt-on acquisitions. Admittedly, its markets remain ‘extremely challenging’, but Staffline had a better first ten months of the year than expected and is well placed to continue winning market share.

Interims, unveiled in September, showed pre-tax profits held at £1.4 million, despite sales down 11 per cent to £49.1 million in a shrinking overall market. Cash generated increased markedly, from £800,000 to £2 million and net debt reduced to £4.2 million from £6.1 million at the year-end, giving management the confidence to hold the interim payout at 1.4p.

Forecasts for 2009 now suggest pre-tax profits of £3.5 million and 11.1p of earnings, ahead of £4.2 million and 13.3p in 2010, with dividend payments of 2.9p and 3.1p pencilled in. Based on those numbers, the shares, offering a bumper yield, are selling for 7.3 and 6.7 times earnings – too low a rating for a cash-generative business well placed for long-term profitable growth once economic headwinds die down.