Looking at the 5 year share price chart, there have been two big dips – H2 2014, and H1 2016. These proved to be good buying opportunities, and we argue that the current share price weakness should encourage investors to take a closer look at Empresaria.Full report is available via Capital Network website
Empresaria (LON:EMR) has outperformed its immediate sector peers by 99% over the last 3 years, and the FTSE All-Share by 142%. This reflects strong growth in earnings and cashflows, which we attribute to the group’s focus on high growth markets.
STRONG PROGRESS – VERSUS MIXED SECTOR BACKGROUND
Empresaria’s H1 results confirm the message of July’s trading update, and the outlook for the full year – continued growth in Net Fee Income (NFI) and EPS. Net Fee Income was up 26% (17% at constant FX), adj. Operating Profit +23% (9% at constant FX).
This has been delivered against a mixed background for the wider peer group. The big generalists such as Hays or Randstad have maintained growth, but some of the specialist peers (notably Impellam plc.) have encountered headwinds. Empresaria has benefitted, in our view, from a balanced geographic footprint and from its multi-niche customer industry base.
The company has noted that there has been a slowdown in hiring processes in the UK post-election, but overall the group is on track, and we maintain our FY forecast of 19.5% earnings growth, well ahead of the sector trend.
CONTRIBUTION FROM EXTERNAL INVESTMENTS
The biggest driver of H1 Net Fee Income and Operating profit was the contribution from the major investments made during 2016 - Rishworth Aviation and ConSol. We believe that the strategy of targeted external investments remains a key value driver going forward.
It is important to note that the operating profit growth has been achieved in spite of charges (£0.5m) for integration and growth enhancement, within the newer investments and also the existing portfolio. This is one of the reasons for the reduction in the conversion ratio (Net Fee Income into Operating Profit) to 14.2% from 14.8% a year earlier. We expect this conversion ratio to resume an upward trend as the benefits of these above-the-line investments feed through.
Empresaria looks strikingly inexpensive on a 2016e PE of 9x (Capital Network forecast) for a stock which keeps delivering strong double-digit EPS growth (2015: 24%, 2014: 29%, 2013: 24%, 2012: 25%).
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