Empresaria Share Discussion Threads

[paleje] 09/9/2011 14:02

I still have half my holding from early year which is now well under water:)

I might be looking for a time to add though, possibly before end of year, because the German courts rule in November, claims could be lower than provision, hourly rates are improving in Germany, UK profit has increased in spite of revenue drop because they've moved into higher margin work, Japan will recover but is not that big an earner, ROW is doing fine.

There was a bit that bothered me and I'll email the company about it because it seems their acquisition of Summers Group earlier in the year, to take advantage of Germany opening its borders and import lower cost non German nationals, might not be going according to plan:-

'In Germany...... although barriers to immigration from EU accession states were lifted in May 2011, there are still significant obstacles to placing foreign workers in German companies.'

When I get a reply I'll post.

[glasshalfull] 09/9/2011 07:28

Here's Merchant Securities take.



EMPRESARIA
Merchant Securities Research, which downgraded Empresaria to a "sell" last month, said the firm's interim results yesterday confirm its fears. It points out that operating profit is down 52 per cent, the UK is flat, the boss is stepping down and market expectations will now not be met. Its price target of 25p has already been met so it reverts to a "hold" but it would not recommend buying at this stage.

Regard
GHF

[topvest] 08/9/2011 21:46

Yes, pretty grim. CEO leaving is a bad sign after 15 years and leaving on a low, could mean he's not optimistic of things getting better. Had this on my watchlist after selling out on the final results (luckily at a small profit) once the German news broke. Not tempted to buy again!

[jeff h] 08/9/2011 18:06

Edison put out a new note and forecasts.

They are going with £5m Profit before Tax for 2011 and £6.3m for 2012.

If, if, if these forecasts are met then the current price a bargain and the price likely to double as GHF suggests.

Edison has some interesting stuff on the German regulation claim :-

"The absolute level of claims by workers has been low to date and there is a three year time limit imposed on retrospective claims (and no facility for class actions or no-win, no-fee type arrangements)."

So hope of a recovery for current holders if, if, if the company can get back on track.

[glasshalfull] 08/9/2011 17:00

Agree Jeff.

I reckon EV also now v important in valuing. Now £8.5m debt to add to mkt cap.

Reckon an opportunity will present itself to double your money or more at some point but too many variables impacting EMR at present IMHO.

Regards
GHF

[jeff h] 08/9/2011 14:21

Market Cap at 25p a share is just over £11 million.

Adjusted Profit before tax in H1 = £1.2m

H2 presumably to be much better so say £3.0m - £4.0m+ profit for full year.

Will be interesting to see the new analysts forecasts.

[paleje] 08/9/2011 10:29

Agree completely GHF, stay away for now.

Couple of interesting points though - Asia growth strong, Germany still has 'acute' staff shortages, its not weakening of the German jobs market that's stuffed them, it's the inability to recover margins after the labour courts ruling on collective pay. The provision is another matter.

They do say German margins have grown over past 2 months and they anticipate a better 2nd half, too late to save them but useful pointers.

[glasshalfull] 08/9/2011 09:55

Truly awful statement:- CEO leaving, margins down, debt level increasing, £3m provision for Germany, profit warning, difficult markets in UK & Germany, Japanese woes, etc.

There will be a time to revisit this share but other than a bid materialising I don't see much upside from current levels for the timebeing.

Regards,
GHF

[paleje] 05/9/2011 14:52

Thanks jeff, I'll wait for interims and see what they have to say.

[jeff h] 04/9/2011 16:08

paleje - I no longer have a copy of the acquisition terms.

From memory (so may not be accurate) the 40% Minority had the option to sell 1/3 of their remaining holding.

Note though that in 2008 one of the original shareholders seems to have cashed in their chips and the Minority Interest in Headway is only 20%.

I'd forgotten about this until looking up research the last couple of days.

I don't know what the acquisition price is but the price is performance related so presumably if losses arise due to back pay claims then the purchase price falls.

EMR also have a Call option to buy out some of the remaining Minority.

The notes to the 2010 accounts tell you at 31/12/10 if the Call option is not exercised then a penalty of Euro 2.2 million was payable, though this was deemed to be a possible but unlikely scenario.

Hope this helps....Interims out this Thursday!

[paleje] 22/8/2011 16:48

I didn't know that Jeff, the deal was before my interest in EMR but I saw it in research, I think original headway guys kept 40% and EMR had an option to buy them out over a period.

But the other way round could be a get out of jail card if things got nasty, depending on the terms, it would also be a demand on cash which wouldn't be welcome if the merde was hitting the fan at the same time. I see your point, do you have any concrete info on that?

[jeff h] 22/8/2011 12:21

Thanks paleje, interesting stuff.

I agree with you about waiting for the German situation to become clearer.

One thing that TW doesn't mention but has been in the back of my mind is that as I understand it there is a put option held by the minority Headway shareholders who can exercise it and force EMR to buy them out.

[paleje] 22/8/2011 10:43

TW wrote a positive piece on EMR in his August Newsletter, I agree with his logic but still think it's too soon to buy or add, better to wait for the company's take on Germany. Potentially very good upside after that.



.....Adverse media comment will, in our view, have impaired sales growth over recent months and in the short to medium term we expect operations in Germany to be under pressure.It is currently unclear to what extent Empresaria's German operations will be affected by the ongoing situation
and we are looking towards the Interims for the six months ended 30 June 2011 as an opportunity for the company to comment on the potential exposure. In our view, as time passes the potential claims by the
affected workers and the government become increasingly difficult to quantify. But we also take the view that there will, to some extent, be a claim in regard to underweight social security payments which could, due to the complexity of the claims process, be settled out of court which would be an advantage to both parties.

However despite the fact that the German market is currently the company's largest operation, investors should focus upon the growth in the other areas of the business which we believe are of critical importance to the future potential of the company. The potential ground lost in Germany for this current year should, on a consolidated basis, be held steady by the operational growth in the rapidly growing Asian market.

Evidently the Japanese business will have also been under pressure following the natural disaster earlier in the year but as this only makes up a small portion of revenues and with the operation not actually being in the area affected, we are not overly concerned. The key growth areas in the developing international recruitment market will be one, simply an increased number of contracts, and two, a move away from the typically lower margin engineering, supply chain, and construction business (which currently makes up c55%) into margin
enhancing white collar recruitment.

Despite the uncertainty surrounding the German operations the issue is industry wide and potentially affects the peer group, not just Empresaria. The uncertain size of the potential claims means that Empresaria is not
without risk but by mid September it is hoped that we should have a quantifiable figure detailing any possible provision. There is evidently concern here but at 33p, capitalising the company at £14.9 million, this is already heavily priced in and the company is oversold given its wider potential. If in an Armageddon scenario the company was to write off its entire German operation (this is very unlikely) for the years ended 31 December 2011 and 2011, Empresaria should still deliver earnings per share of 4.2p and 4.8p respectively, which on a
sensible multiple of just ten highlights the undervalued nature of the company's wider operations given the current share price.

The company structure is that management has a material vested interested in its success and any newly acquired management teams (via acquisitions) are encouraged to also retain significant ownership to align Group interests (which is very attractive as an investor). Moving forward Empresaria has the potential to deliver consistent mid teens earnings growth through its business in the maturing recruitment markets through increased contracts and a move into higher margin white collar workers.

Bearing this in mind in our view, Empresaria demands a slightly higher multiple than peer; Harvey Nash as the latter has limited exposure to the rapidly growing Asian recruitment market. Therefore, valuing the company on twelve times 2012 worst case forecasts Empresaria should still be trading at 58p. But we view this as a seriously harsh valuation.

[paleje] 07/6/2011 14:00

Today's RNS doesn't reassure, they can't say much more really until the extent of possible claims in Germany can be assessed. Even though it seems unlikely there'll be a stampede of claims, or what provision they'll need to make, imo it's still too early to add or buy back in.

[battlebus2] 06/5/2011 16:51

Heading back up again.

[paleje] 06/5/2011 15:58

Let's hope the findings of one court case last month don't become the norm. Analysts seem to think not, hopefully EMR will update shareholders as soon as they are in a position to do so.

EDIT - just shortened the previous link as it was distorting the page:-

Looking though some of the German offerings with google (bad) translations it seems the onus will be on individuals to prove their claims and sue the agency involved, which if true is good because its hassle and imo not many will pursue it. Sorry about the very long link its bec of the google translator.

[paleje] 17/4/2011 17:38

There's a piece here from a risk assessment consultancy trying to put the German issue in context, its a few of weeks old but relevant -



Only certain sectors will be affected by the court ruling and of those only the lowest paid segment and only temporary ones. EMR have several different divisions in Germany, some won't be affected at all.

Too early to be too optimistic but if and when it becomes clear that this isn't going to disrupt long term prospects I think these will be a nice buy/add.

Germany is still providing strong revenue with opportunities to increase soon as 01 May they lower their border restrictions to post 2004 EU entrant countries and EMR will be able to provide staff from their recently acquired Hungarian outlet to fill shortages.

[paleje] 03/4/2011 14:47

Nice to see GECR supporting too, Jeff, and interestingly if they valued them on a PE even half way between current PE and their big brother peers, ie around 15, the share price would be way above today's level.

Accepting the market doesn't like uncertainty and that when the first German claims are reported it might wobble again, I guess the share price will be subdued for a while but I think management updates later in the year will restore.

[jeff h] 02/4/2011 20:16

Forecasts from GECR relating to the above article:-

Y/E 31/12/11 Pre Tax £7.6m EPS 7.6p Div 0.4p

Y/E 31/12/12 Pre Tax £8.3m EPS 8.4p Div 0.4p

[jeff h] 02/4/2011 17:50

Cheers paleje - here's Growth Equities view:-

Empresaria Group*: Finals - Buy at 58.5p with a target price of 85p

On 31st March, Empresaria Group, the multinational specialist staffing group, announced its preliminary results for the year ending 31st December 2010, which were slightly ahead of the already upgraded guidance issued on 31st January. Total revenue was up by 17% to £223.4 million (14% at constant currencies) and net fee income (NFI) was up by 21% to £49 million (14% at constant currencies). Reported profit before tax was £6.7 million versus a loss of £1.5 million in 2009 and adjusted profit before tax nearly doubled to £6.8 million (£3.5 million). A dividend of 0.35p has been recommended, unchanged from 2009. We see the decision not to increase the dividend as prudent given the company's continued success in bringing down its net debt levels, and the uncertainty of potential claims regarding collective bargaining labour agreements in Germany. This also gives Empresaria some headroom to invest in further organic growth.

Regional Highlights

2010 can be summarised as a year of recovery in Empresaria's more mature markets, and as one of rapid progress in its newer high growth markets, where the fruits of investment in mainly start up businesses over the last five years, are starting to be borne.

In the UK (35%of Net Fee Income) it is highly creditable that Net Fee Income rose by 15% to £17m. A performance titled modest by the CEO, pointing to the even more robust growth experienced in the Group's other markets. Empresaria admits that the economic outlook in the UK is unclear and, recently, has not invested significantly in headcount, choosing to focus selectively on areas such as Financial Services and professional recruitment. This, along with a strong recovery in permanent revenues, up by 41% to £6.2 million enabled an improvement in gross margin of 150 basis points to 21%.

In absolute terms the largest growth in NFI came from Continental Europe, an increase of 21% to £21.9 million. This came from a combination of economic recovery and structural growth in its core continental European markets. However a recent ruling by the German federal labour market casts some doubt over the performance of Headstart's temporary staffing operations, particularly in the short term. We address this below, but it is possible that this will not have a material impact on the group's future profitability.

In Scandinavia the healthcare business continues to grow strongly, benefitting from strong demand and a relatively benign competitive environment.

In The Rest of the World (ROW) the Group experienced its fastest growth, with NFI rising by 31% to £10.1 million. For the first time this region contributed materially to Group profitability with adjusted operating profit in the year of £1.6m (2009: £0.3m). Previous investment in capabilities such as Recruitment Process Outsourcing in India and executive training in Indonesia is starting to have a real effect on the bottom line. The regional hub created in Singapore gives all Group companies the opportunity to establish a presence in new pockets of growth at a minimum cost. The first hub was launched in January 2011 in Singapore, resulting in four Group brands (three from outside the Asia region) entering the Singapore market. This is a concept the company may seek to replicate.

Cash flow and Balance Sheet

Net cash flow from operations (after interest and taxes) was markedly improved from £0.7 million to £5.1 million and despite £3 million of expenditure on investment, (the majority of which was on acquiring minority interests in existing subsidiaries), Empresaria still managed to reduce its net debt by £1.9 million to £6.1 million.

Trading Outlook

The Group reports that all regions are experiencing broadly positive market conditions, and we applaud its strategy of increasing its exposure to fast growing dynamic economies and reducing its reliance on the UK market. However there are two specific problems that the Group is urging caution over.

Japan Tsunami Aftermath - Japan currently represents 6% of NFI for the Group. Both trading companies have both been adversely affected by the earthquake and tsunami and the company does expect some months of further disruption. However its experience in Chile which suffered a huge earthquake in 2010 has shown that even after such a traumatic event, business can return to normal levels.

In the case of Germany, recent legal challenges to certain collective labour agreements have created some short term market turbulence and gross margin erosion as well as exposed a significant number of staffing companies operating in Germany to possible future claims from third parties. Empresaria has addressed the problem by switching to a new collective labour agreement and should therefore not accumulate any further exposure. However by the company's own admission the total value of claims is difficult to gauge. The Group is confident that it will be able to recoup gross margin in the future, owing to the underlying strength of the markets in which it operates. However given that Germany is Empresaria's largest single market, it is important that more clarity over this issue arises.
Forecasts and Valuation

The uncertainty over Japan and Germany has weighed heavily on the Empresaria shares, with the price falling nearly 13% on the day of the results release. However we believe that the underlying business is strong. For those investors who can see past the short term issues we believe the current share price weakness represents an attractive buying opportunity. Nevertheless given that the exposure in Germany is as yet unquantifiable, we do urge some caution.

We are consequently forecasting modest growth of 2% in NFI for Continental Europe this year, but given the underlying dynamics of the markets in which Empresaria is represented, we would hope to increase this as the year progresses. Given the current momentum in the UK markets we have forecast a 3.4% increase in UK revenues leading to a 6% increase in NFI due to an increasing contribution from permanent revenues. Despite the disruption in Japan, we believe that the growth prospects in Empresaria's other territories, will allow the ROW region to increase Net Fee Income by 15%. We assume generally similar trends in 2012 although see scope to forecasts stronger growth in Continental Europe once more clarity on the situation in Germany arises. We maintain our stance of Buy and target price of 85p which values the shares on just over 11 times current year forecast earnings.

[paleje] 01/4/2011 16:51

I spoke with Miles Hunt today after reading a report on Staffing Industry Analysts which differed from yesterday's RNS (the reference to retroactive payments).



Miles cleared up the retroactive payments issue, both sides are right, it is a technicality in interpretation and Staffing Industry are jumping the gun a bit suggesting that retroactive claims are an actuality when so far no individual ruling has been given.

Having said that, it seems there will be some claims in Germany in the coming months but most likely not be as bad as doomsters imagine and I think the growth will outweigh them. I thought that yesterday and said so in my post. After speaking with the CEO today these are not a sell for me. I haven't seen the IC article Jeff refers to above but good on 'em and if a few more calm assessments come out over the next few days I can't see us dropping much more. The basic story hasn't changed.

Japan is not likely to impact significantly imo.

EDIT - sorry that previous long link made the page go funny, I've made it smaller (tinyurl)

[jeff h] 01/4/2011 12:27

Concerns overdone - IC say Buy.

[topvest] 31/3/2011 21:51

I got 64p selling mine for 19% after holding for only 3m, so a 76% annual return. More than happy to get out at that given the derisory dividend and uncertainty created by today's results. May get back in at some point, but didn't like the forward outlook at all and can see another profit warning on the way with those words.

[battlebus2] 31/3/2011 19:04

Yeah i've kept my profit of 2500 shares to hold long term so hopefully things will improve.