Com­pa­nies in­volved in staffing so­lu­tions have been shunned by the mar­ket. Some are dirt cheap — but pro­duce clean prof­its

Financial Mail - Investors Monthly - - Contents - BUY Marc Hasen­fuss


Share price: 63c JSE code: PMV

PRIMESERV HAS BEEN con­sis­tently prof­itable for the past six years — and share­hold­ers have been treated to steadily in­creas­ing div­i­dends for the past five.

The mar­ket couldn’t care less, and the group’s shares trade on a lowly trail­ing earn­ings mul­ti­ple of 2.4. This sug­gests the mar­ket is ques­tion­ing the sus­tain­abil­ity of the busi­ness model.

But in the year to end-June Primeserv was any­thing but sput­ter­ing, with the top line up 11% R807m. Op­er­at­ing profit jumped 14% to R25m, which im­plies that Primeserv man­age­ment runs a tight ship. The group’s bal­ance sheet has also been re­in­forced. The cash flow state­ment did look vul­ner­a­ble at year end — but direc­tors in­di­cated that out­stand­ing sums on project work had been col­lected after the fi­nan­cial year end.

On pa­per, Primeserv looks a scream­ing buy. But in truth the share price prob­a­bly won’t shift markedly; in­vestor sen­ti­ment for com­pa­nies in­volved in staffing so­lu­tions and train­ing are still jaun­diced. How­ever, IM thinks Primeserv must be a can­di­date for a buy­out and delist­ing. The group is un­likely to raise cap­i­tal any time soon, and the cost of main­tain­ing a JSE list­ing seems ex­or­bi­tant for such a small-cap counter. Last stated NAV was 167c a share. Even if Primeserv just de­liv­ers half its 2019 earn­ings for the next five years, it would more than jus­tify pay­ing an at­trac­tive pre­mium on the share price. ●


Share price: 160c JSE code: WKF HOLD AS WITH PRIMESERV, THE SOLID profit per­for­mance of Work­force has been roundly ig­nored by the mar­ket. Over the past five years, Work­force has posted col­lec­tive earn­ings of more than 185c a share (ex­clud­ing the just-re­leased in­terim earn­ings num­ber).

The dif­fer­ence be­tween Primeserv and Work­force is that the lat­ter has only re­cently re­sumed div­i­dends (on a high cover) after an ac­qui­si­tion spree. It seems likely that Work­force will pre­fer to in­vest its free cash in growth op­por­tu­ni­ties.

The in­terim re­sults showed the stresses and strains of the tough lo­cal econ­omy, but Work­force man­aged a re­spectable bot­tom line of 18.5c share. As­sum­ing a slightly stronger sec­ond half, full-year earn­ings of 37c-40c a share seems a rea­son­able fore­cast, plac­ing the share on a for­ward earn­ings mul­ti­ple of less than four. Work­force also boasts an in­trin­sic NAV of 166c a share.

While Work­force is dirt cheap, the group’s longer-term plans — which in­volve sep­a­rately list­ing si­los when they have been bulked up to achieve cer­tain after-tax profit tar­gets — will keep a cap on div­i­dends. With­out strong div­i­dend flows from Work­force’s de­cent cash flows, there prob­a­bly isn’t much to in­ter­est the mar­ket in the short term.

IM rates Work­force as an in­ter­est­ing long-term hold. ●


Share price: 39c JSE code: CSG SELL CSG HOLD­INGS — WHICH HAS PSG Group and ARC Cap­i­tal as sig­nif­i­cant share­hold­ers — has ar­guably been the most ag­gres­sive in its diver­si­fi­ca­tion ef­forts away from its core staffing busi­ness. At its fi­nan­cial year end its staffing seg­ment pro­vided 43% of rev­enue, with fa­cil­i­ties man­age­ment at 36% and se­cu­rity at 21%.

The diver­si­fi­ca­tion ef­fort proved costly, and CSG’s share price col­lapse, from about 130c a year ago to un­der 40c, clearly ar­tic­u­lates the mar­ket’s dis­ap­point­ment at de­vel­op­ments. While rev­enue from se­cu­rity ser­vices in­creased 7% to R458m, the hastily mus­tered seg­ment chipped in a loss of R15m to CSG’s op­er­at­ing profit line.

The group con­ceded that the in­te­gra­tion and con­sol­i­da­tion of se­cu­rity ac­qui­si­tions in 2018 took longer than ex­pected. Setup costs of a new cen­tralised con­trol room in Pre­to­ria com­pounded woes, but CSG has re­as­sured that all de­sign, plan­ning and op­er­a­tional is­sues there were rec­ti­fied.

Se­cu­rity is in­creas­ingly be­com­ing a cen­tral con­sid­er­a­tion for South Africans. But snap­ping up small se­cu­rity op­er­a­tions comes with chal­lenges.

IM sus­pects that it might take CSG a while to build a com­pelling se­cu­rity clus­ter, and that the share might best be avoided un­til there is ar­rest­ing ev­i­dence of op­er­a­tional trac­tion. ●

Pic­ture: 123RF — LE MOAL OLIVIER

Pic­ture: 123RF — IQONCEPT


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