When the going gets tough the staff get going
When the going gets tough the staff get going
HUMAN CAPITAL is in big demand and (if you can forgive a terrible pun) recruitment companies are about to make a (s)killing. Indeed, staffing – or human resourcing, its more pretentious title – is back in fashion again with investors on the JSE as strong fundamentals and a slew of corporate activity reigniting serious investor interest.
Traditionally, specialist services businesses are often looked at askew by investors, who (perhaps rightly) reckon outside the Bidvest Group (and the old Rebserve rump now in Mvelaphanda Group) there’s not much that regularly presents strong returns.
But SA’s recruitment sector has started to pick up some impressive momentum – taking its cue not only from our currently vibrant economy but also from an acute skills shortage that’s seen strong demand for staff throughout the financial services, retail, engineering, mining, construction, telecommunications and public sectors.
Naturally, the demand for affirmative action candidates is also a major factor underpinning the bubbling business levels in the recruitment industry. Market leader Adcorp noted in its most recent set of results that the balance in the recruitment market has “shifted somewhat away from a constraint in new employment positions to a constraint in candidate availability”. That’s a fine position for recruitment businesses to find themselves in...
Historically, staffing services have never – like other specialist sectors, such as technology or healthcare – really caught investors’ fancy for sustainable periods. One thinks of listings such as PAG and Technihire, which languished for much of their tenure on the JSE.
Staffing did come into vogue briefly in the heady days of the late Nineties listings boom, when a number of contenders looked ready to cash in on increased demand for human capital. But not everyone got the business model right, though acquisitive
Adcorp emerged as the clear market leader and market favourite, earning a tag as a high growth “grey” stock.
Right now staffing is hotting up as an item on the JSE, underlined by the fact that the market has seen three new listings (excluding specialist call centre operator Dialogue). Around R600m has also been spent on acquisitions by the main players over the past few months – while the share price of market leader Adcorp has more than doubled in two years.
Industry sources say that further listings on the JSE can’t be ruled out but that there’s really only one major unlisted player remaining, in the form of Transman. Assembling a listing patched together with an array of smaller recruitment agencies would probably not be warmly welcomed by the market, which has learnt to be wary of companies assembled specifically for listing.
For a sector that’s largely been in a “wait and hope” phase for the past four years, the acquisitions and new listings activity suggest strongly that the staffing sector could be on the cusp of a longer-term growth phase.
Adcorp CEO Richard Pike confirms that SA’s staffing sector is seeing new levels of buoyancy. “There’s a major skills shortage in SA and if you can place staff, you can make money.” Pike says demand brought on by the skills shortage is compounded by SA’s rapid economic growth and increased investment in expenditure.
Naturally, with industry prospects looking fundamentally strong, the recent spate of corporate activity – of which Adcorp accounts for the bulk in value terms – is understandable. Players are jockeying for viable niches or to broaden their range of placement offerings.
Pike’s comments are echoed by Primeserv MD Merrick Abel, who comments: “There’s no doubt the market is buoyant. There’s a serious lack of skills – so it’s a case of being able to offer your available skills to organisations.”
Referring to the flurry of corporate activity, Abel says the largely fragmented market is hotting up quickly, and acquisitive parties would need to take care not to overpay for assets.
Of course, the risk in any exuberant sector is that the scramble for assets can increase the risk of overpaying in transactions, bloating central costs and straining the core management function to the point where focus (and sometimes strategy) becomes muddled.
Surely nobody needs reminding that such a growth phase could see an opportunity for others to list, the danger being that copycat companies that are patched together may come to the market. Often the centre simply doesn’t hold...
Abel says though there are many smallto medium-sized staffing enterprises in SA, only a few groupings are of the R500m+ size.
Pike suggests the flurry of deals in the staffing sector is more a function of natural consolidation than an aggressive asset grab. He points out that SA’s staffing sector is very fragmented – comprising 3 000 mainly small players. “The corporate action we’ve seen is relatively small measured against the entire sector. There could well be more acquisitions this year...”
Apart from the improving sentiment for staffing services counters, investors may also find the “recession resistant” tag rather attractive. Generally speaking, staffing companies have a built-in advantage should economic activity slow markedly, as corporations are often convinced that replacing retrenched employees with “temps” is more cost-effective than rehiring permanent staff.
While there’s currently a wider range of choice for potential investors in this increasingly vibrant sector, Finweek reckons any forays should be carefully considered. There are basically half a dozen options available on the JSE, each offering investors a spread of established and fledgling options.
Investors who believe firmly in sustained economic growth for the medium term (ie, all the way up to the 2010 Soccer World Cup) should consider some staffing exposure in their portfolios. Our thoughts and ratings on the listed staffing contenders appear below.