Staffline

BUY

05/09/2011 Miles Nolan

Despite a record set of interims, churlish profit-takers knocked 4% off the share price of fast-growing recruitment firm Staffline (STAF) on the day of its results.

Staffline both provides and manages workforces of up to 25,000 people a week, with a focus on the markets of food processing, manufacturing and logistics. In the six months to June it achieved a 45% jump in sales to £120.9m as pre-tax profits increased 38% to £2.9m. The dividend is up 21% to 2.9p and, thanks to timing issues, a previous £4.8m net debt position has swung to net cash of £2.4m.

It completed two acquisitions during the period and is seeking more deals, particularly in industrial recruitment. Over the past couple of years Staffline has completed 11 acquisitions, chipping in annualised revenue of £70m. The market remains fragmented, with deals being forced by a number of distressed sellers.

One astute move looks to be the £3m deal earlier this year to buy Fourstar Employment, a move that has taken Staffline into the market for the long-term unemployed. This is an area that the government is keen to address, as it seeks to increase employment, with the knock-on effect of funding its coffers with their subsequent tax contributions.

Aside from corporate activity, organic growth remains strong – 16 new sites are planned for the second half. Staffline has also moved into Poland with a major customer, and is planning a second site in the country.

Driven by energetic chief executive Andy Hogarth, the AIM player is still on track to 'treble the treble' by 2013 – this would mean achieving sales of £360m and pre-tax profits of £12m by then. Speaking to Growth Company Investor, he said, 'We remain ambitious and see plenty of scope for growth.'

The blue-collar/food processing sectors are historically resilient during downturns so, despite current headwinds, broker Shore Capital has maintained its forecast for 2011 at pre-tax profits of £8.6m and EPS of 26p. We last recommended the shares in April at 195p, and even after the increase in its price we retain our counsel. Buy.