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I timed my original (June 2007) recommendation of shares in international recruitment group Empresaria (LSE:EMR) badly. This tip, at 169p has been an unmitigated failure and for that I apologise. The macro economic backdrop has not helped but there have also been clear company specific issues. The shares have recovered somewhat from late 2011 lows of 17.5p to currently trade at 23p – capitalising the company at £10.25 million. Last month the company announced results for the first six months of calender2012. Is it time to call it a day? I think not and here is why.
The interim results showed a pre-tax profit of £1.4 million on revenue 3.6% lower than in the first half of 2011, at £97.8 million. Earnings per share came in at 1.4p, up from 1.2p, with net debt totalling £8.5 million at the period end. However, there was a net current asset position of £5.8 million, with non-current liabilities totalling £9 million. The numbers reflected a 13% increase in Permanent revenue, driven mainly by Asia-Pacific operations, whilst Temporary staffing revenues declined by 5%.
UK revenue increased by 4% (to £33.7 million) compared to the first half of 2011 with adjusted operating profit increasing by £0.1 million to £1.1 million. Meanwhile, cost savings and a re-focussing towards higher skilled workers saw adjusted operating profit increased by £0.1 million, to £0.2 million, in the company’s ‘Continental Europe’ operations despite a 14% decline in revenue to £43.3 million. ‘Rest of the World’ revenue increased by 11% to £20.8 million – aided by a strong Asia performance – though operating profit was £0.1 million lower at £0.5 million as a decision to exit from an unprofitable major contract in Chile resulted in transitional losses.
Looking ahead Empresaria noted that, although economic conditions remain challenging, the UK business is in a stable position and Asia is performing well. A restructuring of the German business however “is likely to impact short term profits negatively”, though a focus on organic growth continues – a new office in Hong Kong was opened in the half year period and overall the company expects “profits slightly ahead of last year”. Broker earnings forecasts were reduced on the back of this – with earnings per share around 5p now expected for the full year. That sort of profitability should allow Empresaria to repay some of its debt – clearly investors would be far more comfortable if borrowings could be reduced materially.
First half finance costs of £0.4 million were well covered by the £1.8 million of operating profit and although the current macro economic climate clearly presents a challenge to a company such as this, Empresaria’s geographically diverse revenue (now operating in 19 countries across the globe) and exposure to areas of growth potential (e.g. Asia and South America, with the German business expected to benefit from the current restructuring next year) look to offer the prospect of a material earnings rebound in the next few years. I thus consider the current valuation pretty undemanding and the shares are a speculative buy/average down.
