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Summary
- As per the Recruitment & Employment Confederation data, the confidence in hiring and investing index increased to 4 in the first half in July from -9 in June.
- The retail sales in the UK were up by 13.9 percent month on month in June. The UK economy is getting on-track post lockdown.
- Staffline Group decided not to declare dividend until July 2022.
- Staffline Group completed refinancing of credit facilities. The total facility is £103.2 million.
- Gattaca PLC's revenue declined by 41 percent for the period April 2020 to June 2020 against last year.
- Gattaca PLC closed the operation in China.
Given the above-market conditions, we would review two stocks - Staffline Group PLC (LON:STAF) & Gattaca PLC (LON:GATC). Staffline Group and Gattaca PLC are industrials stock. STAF and GATC were down by about 4.84 percent and 0.97 percent, respectively (as on 24 July 2020). As per the industry experts, British employers are positive about hiring and investments after the ease in lockdown. Let's skim through their financial and operational updates to understand the stock better.
Staffline Group PLC (LON:STAF) – Revenue declined by 3.9 percent year on year in FY19
Staffline Group PLC is a UK based services company that provides service in recruitment and training group to the government and commercial customers. The business is categorized into two divisions, namely Recruitment Division and PeoplePlus Division. The Company supplies close to 60,000 blue-collar staff to approximately 1,600 private sector clients. The Company operates at 460 locations in the UK, Republic of Ireland and Poland.
FY2019 Annual results (ended 31 December 2019) as reported on 10 July 2020
The Company reported revenue of £1,076.7 million in FY19, which decreased by 3.9 percent year on year from £1,120.9 million a year ago. The recruitment business contributed 92 percent of the total revenue. The underlying operating loss was £0.8 million, which was an underlying operating profit of £32.8 million in FY18. The reported loss before tax widened to £48.1 million in FY19 from the reported loss before tax £17.8 million in FY18. The net borrowing based on pre-IFRS was £59.5 million. The revenue is split into three divisions. Recruitment GB division generated revenue of £841.1 million with a gross profit of £56.6 million and an underlying operating profit of £4.5 million. Recruitment Ireland reported revenue of £147.7 million with a gross profit of £15.6 million and an underlying operating profit of £4.3 million. PeoplePlus reported revenue of £87.9 million with a gross profit of £14.3 million and an underlying loss of £7.1 million. The hours worked by temporary workers in Recruitment GB and Recruitment Ireland was 68.6 million and 9.4 million, respectively.
Financial Highlights - FY2019
(Source: Company Website)
Completion of Refinancing
On 29 June 2020, the Company refinanced total facility of £103.2 million with expiry in July 2022. The Company stated that it would repay £10.0 million of the revolving credit facility and the facility would be reduced to £20.0 million from 31 July 2020. The receivables finance facility's (RFF) new arrangement is £73.2 million that can be drawn against the receivables. The interest on of RFF would be 3.50 percent above Bank of England's base rate. The Company also has access to uncommitted receivable financing facility of £25 million and few customer financing agreements. The Company has suspended asset acquisition and declaration of the dividend until July 2022.
Share Price Performance Analysis
1-Year Chart as on July-24-2020, after the market closed (Source: EODHD/Others, Thomson Reuters)
Staffline Group PLC stock closed at GBX 26.55 (as on 24 July 2020), down by 4.84 percent. Stock 52-week High and Low were GBX 180.00 and GBX 15.56, respectively. Staffline Group had a market capitalization of £18.30 million.
Business Outlook
The Company is confident about the liquidity position that is enough to take Staffline through to March 2021. The refinancing would help the Company to improve the operating margin. Due to the pandemic, the Company has seen mixed demand from various sectors. There is strong demand from supply chain and food production business, whereas, the request from the manufacturing and automotive sector has declined. However, since ease in lockdown, the Company has experienced slight recovery from retail and manufacturing sectors. The Company expects the PeoplePlus business segment to benefit from government schemes and training.
Gattaca PLC (LON:GATC) – Lower net fee income expected for FY2020
Gattaca PLC is a UK based placement company that connects skilled people with engineering and technology roles through its brands such as Matchtech, Networkers, Barclay Meade, Alderwood, Cappo and Resourcing Solutions. Gattaca has operations in the UK, Americas, Asia and EMEA. The Company is included on the FTSE AIM All-Share index.
FY2020 Trading Update (ending 31 July 2020) as reported on 17 July 2020
The Business performance was down by 41 percent year on year from April 2020 to June 2020. The impact was mainly due to the lockdown imposed by the UK government. The net fee income is expected to be £54 million for FY20, down by 22 percent year on year from £69 million in FY19. The previous expectation for net fee income was £64 million. The performance of the Company's international operations was steady; however, the operation in China is now closed. The negotiated the covenant and a new covenant has been put in place by HSBC bank for the revolving credit facility until July 2021. As on 30 June, the Company had liquidity of £59 million including cash and undrawn financing facility. The Company had cash of £23 million and a non-recourse invoice financing of £22 million. The total limit of invoicing facility is £75 million. The revolving credit facility would be reduced to £8 million and £5 million on 31 July 2020 and 31 October 2020, respectively after repayment.
FY2020 Six months result (ended 31 January 2020) as reported on 27 March 2020
In H1 FY20, the net fee income was £32.2 million, which was down by 12 percent year on year. The Company's international operation reported net fee income of £4.0 million. The profit before tax was £2.7 million. The contract segment generated net fee income of £22.8 million, whereas permanent segment generated £9.4 million. On 31 January 2020, the net debt declined to £3.1 million from £24.8 million on 31 June 2019. The net debt improved due to the change in working capital impact.
Share Price Performance Analysis
1-Year Chart as on July-24-2020, after the market closed (Source: EODHD/Others, Thomson Reuters)
Gattaca PLC stock closed at GBX 51.00 (as on 24 July 2020), down by 0.97 percent. Stock 52-week High and Low were GBX 150.76 and GBX 29.40, respectively. Gattaca had a market capitalization of £16.47 million.
Business Outlook
The Company has implemented an improvement plan to mitigate the impact of the pandemic. The Company highlights that it has achieved financial stability through the negotiation of covenant terms, and the net cash position of the Company is positive. It would invest in growth opportunities and it confident of benefiting from the UK government's investment in infrastructure and STEM-driven sectors.
