VCP still has work to do at Adcorp
Value Capital Partners (VCP), an investment company styled on an activist shareholder model, still has its work cut out at services group Adcorp. Adcorp has endured some ups and downs since VCP’s involvement, but on Friday things took a turn for the worse when a dour trading update for the year to end-February was published.
Value Capital Partners (VCP), an investment company styled on an activist shareholder model, still has its work cut out at services group Adcorp.
Adcorp has endured some ups and downs since VCP’s involvement, but on Friday things took a turn for the worse when a dour trading update for the year to the end of February was published.
The group’s shares took a big hit, scuttling the share price 6% to a multiyear low of 400c.
In the last year Adcorp, once a powerhouse in the human resourcing and research sector, has lost more than 80% of its market value.
VCP, spearheaded by seasoned investment heavyweights Sam Sithole and Anthony Ball, holds a 25.7% stake in Adcorp, having initially acquired a 12.6% stake in the business in mid-2017.
VCP’s other JSE-listed investments include gaming and leisure group Sun International, cement maker PPC, empowerment group Grand Parade Investments, technology specialist Altron, printing and packaging company Novus and automotive components group Metair.
At Friday’s share price VCP’s stake in Adcorp is worth about R125m, probably less than what it paid for its initial 12.6% holding in the company.
Adcorp’s trading update, which referenced “constrained trading conditions”, pencilled in an operating profit range of R181m-R217m. This represents a drop of 44%-53% compared with the previous financial year.
Adcorp indicated a loss of 491c-589c a share, a sharp reversal from the headline earnings of 13.9c a share and 16.7c a share in the 2019 financial year.
It noted that impairments topping R465m were included in the earnings estimates.
Adcorp’s “red ink” results come only weeks after the group appointed Phil Roux as CEO. Roux previously held executive positions at Tiger Brands, Coca-Cola Sabco and most recently at Pioneer Foods.
SmallTalkDaily analyst Anthony Clark said Roux’s appointment was significant for value restoration plans at Adcorp. “Basically it’s an executive with a big reputation going into a small company. This shows just how seriously VCP are taking the effort to turn around this company.”
STREAMLINE OPERATIONS
As indicated in the trading statement, Roux’s immediate task will be a review of Adcorp’s portfolio of companies in a bid to streamline operations and de-gear the balance sheet.
It’s not all bad news, however. Adcorp did report a positive performance in some of its training segments.
The group pointed out that the capabilities of Adcorp Technical Training (ATT) and Production Management Institute (PMI) allowed the training business to continuously partner with clients in the heavy industrials, mining and logistics industries.
But Adcorp’s operations in Australia faced challenges, including a sluggish economy, drought, flooding (which affected the Labour Solutions Australia business in the agricultural sector), and the bush fires that hit many parts of the country in the second half of the year.
In terms of Covid-19’s influence on Adcorp’s operations, the group said the temporary employment services and functional outsourcing segments provided staffing to essential services, including to the retail supply chain, health care, power supply and contact centres.
Adcorp said the national reaction to the Covid-19 outbreak has been less severe in Australia, but lower earnings were still anticipated in the first half of the new financial year.
ADCORP, LEADER IN ONCE THE A HUMAN RESOURCING AND RESEARCH SECTOR, HAS LOST MORE THAN 80% OF ITS MARKET VALUE
IT’S NOT ALL BAD NEWS, HOWEVER. ADCORP DID REPORT A POSITIVE PERFORMANCE IN SOME OF ITS TRAINING SEGMENTS