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Empresaria Group plc: THE INVESTMENT CASE

Multi-brand, global strategy helping drive record growth for staffing firm Empresaria

The specialist staffing group reported a record set of interim results as net fee income grew for the sixteenth consecutive quarter
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The company is a niche player but in a lot of high-growth niches

Last year was a challenging one for global recruitment agencies, but Empresaria Group plc (LON:EMR) weathered the storm better than most thanks to its global reach.

Record start to 2017

It has carried that fine form into this year as well, as evdenced by a record first half during which it notched up its sixteenth consecutive quarter of net fee income growth.

WATCH: Capital Network's Ed Stacey on Empresaria Group

Net fee income – or gross profit – for the six months ended 30 June jumped 26% to £34.4mln (H1 2016: £27.2mln) on significantly higher revenues of £173.4mln (H1 2016: £106.1mln).

READ: Record half-year results...

In particular, the UK and the Asia Pacific regions enjoyed a strong opening six months, with both divisions buoyed by new acquisitions.

Empresaria snapped up majority stakes in ConSol Partners and Rishworth Aviation in the second half of last year and both have settled in well in their first full year of trading since being bought out.

UK remarkably resilient despite Brexit

Despite all the palaver over Brexit and the subsequent economic fallout, the UK division - which acounts for about a third of overall net fee income - has remained resilient.

There were fears that last summer’s Brexit vote would lead to many UK-based firms holding back on their recruitment plans, but Empresaria is the latest staffing group to report otherwise.

READ: Empresaria swoops for Rishworth Aviation

That said, the group did note that since the general election in July, there has been a "noticeable slow down" in the hiring process, but added that it is still seeing "good levels of vacancies" coming to the market.

On track to hit full-year expectations

“Empresaria has delivered a record first half result with a strong growth in adjusted earnings per share, demonstrating the strength of our diversified business model,” said chief executive Joost Kreulen.

“We are pleased with how both Rishworth Aviation and ConSol Partners have integrated into the Group and we see good opportunities for them to grow their businesses as part of Empresaria.

“We see good growth opportunities across our brands and from further potential investments. We remain confident in our ability to meet current market expectations for the full year.”

Think globally, act locally …

Founded in 1996, and listed on AIM since 2004, the company has a seemingly paradoxical philosophy, being both heavy on specialisation and averse to putting all of its eggs in one basket.

It achieves this through a multi-brand approach; each brand is a semi-autonomous unit specialising in its chosen fields, but there are enough brands under the Empresaria umbrella to ensure the group has a decent geographical and sectoral spread.

READ: Latest Capital Network research...

The group operates 20 brands in 19 countries across seven separate sectors: Technical & Industrial; IT, digital & design; professional services; retail; executive search; healthcare; and other services.

Each brand seeks to be a leader in its field, tailoring the brand to the specific needs and requirements of the clients and the candidates.

"It's more like an inch wide and a mile deep, than a mile wide and an inch deep," Kreulen has said, explaining the company's philosophy.

The bulk of the company's net fee income (NFI) comes from providing temporary staff, with the split increasing to 60% temps and 40% permanent staff in 2016.

Geographical spread ….

More than half of the group's brands operate in more than one country, and geographically the group's operations divide into four areas: the UK; continental Europe; Asia Pacific; and the Americas.

On the European mainland, it is represented in Germany, Austria and Finland, with the focus very much on Germany.

The German staffing market was only deregulated in 2004, which means temporary staffing is still a relatively emerging sector within the German economy.

In the Americas, the group has long been represented in Mexico and Chile, and recently dipped a substantial toe into the USA with the acquisition of Pharmaceutical Strategies in October 2015.

For 2016, the group saw more than two thirds of its net fee income generated from outside the UK, with Asia Pacific and UK both at 32%, Continental Europe at 28% and Americas at 8%.

That slight emphasis on reliance on the UK did the company few favours in 2016, what with all the uncertainty in the run-up to the EU referendum vote and the brouhaha that followed it.

Happily, the UK region saw stable activity levels return in the second half of the year and into 2017, though the tricky first half meant UK profitability in 2016 was lower year-on-year.

As for the sectors in which Empresaria operates, the big earners are Technical & Industrial; IT, Digital & Design; and Professional Services.

The acquisition of Pharmaceutical Strategies saw it establish a presence in the Healthcare niche, while a swoop for New Zealand-based Rishworth Aviation in July gave it the chance to build its Aviation Services interests.

The purchase of a majority stake in ConSol Partners last November boosted its IT presence into mobile and cloud technology recruitment in Europe and the US.

In a people business, keep the people …

Empresaria is not alone in pursuing a buy-and-build strategy, but it seems to have worked out that when buying a people business, it is wise to keep the people.

Management  believes in giving the brands a lot of independence, and encouraging staff to hold a stake in the group, in the hope this will keep the entrepreneurial flame alive in any companies it acquires, and will engage the loyalty of the group's own talent pool.

It means the company is not typically interested in buying a business where the founder is looking to get out of the business and into a deck chair on a beach in the Bahamas; it is interested in buying, or taking stakes in, businesses that are not for sale.

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Empresaria Group plc Timeline

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