Staffline Group PLC

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

Investment Rationale – SELL at GBX 60.00

• Small Market Capitalization: It is trading as a penny stock with small market capitalization, and it is exposed to market volatilities. Moreover, the Company has a history of losses, and thus, it can also face liquidity issues.
• Short-term Challenges: The operational disruption arising from the Omicron Covid-19 variant, fall in the UK Composite PMI index, monetary policy tightening, and Ukraine war fears can keep the equity market subdued in the short-term.
• Technical Indicators: From a technical standpoint, the MACD line is trading below the signal line and the centreline, reflecting a bearish price pattern.
• Financial Weakness: During H1 FY21, Staffline reported a negative net margin and return on equity, while the industry median was positive.

Key Risks

• Subdued UK Macroeconomic Indicators: The UK Composite PMI fell marginally to 53.4 in January 2022 from 53.6 in December 2021, while the UK consumer price inflation breached a nearly 30-year high of 5.4% in the 12 months to December 2021.
• Macroeconomic Uncertainties: Poor retail sales, weak industrial data, the global shortage of labors, supply constraints, tightening of monetary policy can hamper the business prospects.

Trading Update (or the year ended 31 December 2021, as on 25 January 2022)

(Source: Company Website)

• Trading: Staffline sustained the positive momentum built in H1 FY21 and reported a decent increase in revenue.
• Profitability: In FY21, the underlying operating profit jumped by over 108%, year-on-year.
• Financial Position: It reported net cash of £6.9 million on 31 December 2021 (FY20: net debt of £8.8 million).

Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

Conclusion

Staffline has given a sudden jump in stock price, following its FY21’s trading update. Therefore, it is giving a decent opportunity to escape the ongoing uncertainties. Moreover, the Company has highlighted the concerns related to the macroeconomic headwinds, which can eventually affect the Company’s financials. The stock made a 52-week High and Low of GBX 92.80 and GBX 47.10, respectively.

Based on the history of net losses, macroeconomic uncertainties, bearish technical stance, and unfavorable valuation as done using the above method, we have given a “SELL” recommendation on Staffline Group PLC at the closing price of GBX 60.00 (as of 25 January 2022).  

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

Note 2: Investment decision should be made depending on the investors’ appetite on 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 subject to the factors discussed above.

Note 3: Target Price refers to a price level which 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.

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