Staffline Group PLC (LON: STAF)

Staffline Group PLC (LON: STAF) is an FTSE AIM All-Share listed recruitment and training group that operates through three divisions, namely Recruitment GB, Recruitment Ireland, and PeoplePlus Division.

The Annual General Meeting is scheduled for 26 May 2022.

Growth Prospects

• Divisional Performance: The revenue per employee went up by 18.3% to £62.6 thousand during FY21. Moreover, the gross profit per fee earner went up by around 14.6% for the Recruitment GB division and increased by approximately 2.2% for the Recruitment Ireland during FY21.
• Customer Wins: The Company had secured a long-term agreement with BMW Group for its Recruitment GB division. The contract is expected to commence in the second quarter of 2022. Under this contract, the Company will supply flexible operational workforces and several specialist roles for its manufacturing sites in England.

Key Risks 

• Weak Industry Trends: According to figures from the S&P Global/CIPS, the UK services PMI went down from 62.6 in March 2022 to 58.9 in April 2022.
• Weak UK GDP Figures: According to the Office for National Statistics, the UK GDP grew QoQ by just 0.8% during Q1 FY22. Moreover, it had declined by 0.1% in March 2022.
• Bank of England Warning: The Bank of England had trimmed its economic growth forecast for 2023 and is expected to show a contraction of 0.25% from a previous estimated growth of 1.25%. Moreover, it had also warned of UK inflation reaching around 10% very soon.

Key Fundamental and Shareholders Statistics of Staffline Group PLC. 

Henry Spain Investment Services, Ltd. is the most significant shareholder as it holds nearly 27.50 million shares. 

Financial Highlights (for the 12 months period ended on 31 December 2021, as on 22 March 2022)

(Source: Company Filings)

• Top-Line Business: The Company’s top-line revenue had increased from £927.6 million during FY20 to £942.7 million for FY21.
• Profitability: The strategic actions drove gross margin higher from 8.0% in 2020 to 8.8% for 2021.
• Net Cash: Net Cash stood at £6.9 million as of 31 December 2021.

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 12 May 2022 at 12:13 PM GMT+1, STAF’s shares were trading at GBX 49.20, down by around 3.15% from the previous day closing price. Stock 52-week High and Low were GBX 92.80 and GBX 40.10, respectively.

On a daily chart, the stock price is sustained around the lower Bollinger band. Hence, there could be an uptick in the stock price in the near term. Also, the 14-days RSI of ~32.61 reflects an oversold territory.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Business Outlook

The Company has produced a strong FY21 with a positive turnaround into profitability. Moreover, STAF has an encouraging pipeline of opportunities emerging across industries such as automotive and travel as the UK economy accelerated its recovery from the Covid-19 pandemic. The Company has enhanced its revenue visibility with a strong market share in resilient sectors such as food distribution, logistics and online sectors. In a nutshell, STAF remained well positioned to deliver sustainable growth driven by balance sheet strength and market leading position.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the strong client wins, net cash position, turnaround into profitability, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Staffline Group PLC at the current market price of GBX 49.20 (as of 12 May 2022 at 12:13 PM GMT+1), with lower-double digit upside potential based on 12.95x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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