Shares in the specialist staffing group Empresaria (LON:EMR) have scope to “materially outperform” over the next year, according to the company’s broker Arden Partners.
In a note published shortly after a bullish trading update, Arden said the company’s shares are worth 130p each. They are trading at a 50% discount to this valuation.
“Profit delivery and current trading trends support the view Empresaria is firmly in growth mode,” Arden said.
Earlier the company said a recent round of investment is paying off and that full-year profitability will come in ahead of City forecasts.
It overcame “adverse currency head winds” created principally by a weaker euro to post a 23% advance in adjusted pre-tax earnings, while fee income rose 10%.
Net debt fell by over a quarter at £7.3mln, a figure that included the term loan used to fund the October acquisition of Pharmaceutical Strategies in the USA.
Arden Partners has raised its pre-tax profit forecast to £7.5mln from £7.2mln for 2015. Its profit number remains at £8.6mln for the current year.
The full-year results on March 2 will provide detailed analysis of the Empresaria’s performance.
However, chief executive Joost Kreulen said the group had benefited from its investment in new staff, the launch of a second brand in the Middle East and an enhanced contribution from offices set up in 2014.
It also continued with the strategy of “devolving” low margin industrial contracts.
Empresaria said its Australian and Thai operations were “notable positive performers”, while some sectors in the UK also did well.
CEO Kreulen said he was “particularly pleased” with German and Indian units, with the latter “significantly” increasing profits.
Finally, the integration of US healthcare agency Pharmaceutical Strategies appears to be going well.
“We continue to investigate further investment opportunities to enhance our existing regional and sector coverage and so help accelerate the growth of the business,” the Empresaria boss added.
“We see exciting growth opportunities for the group and are confident in our ability to deliver profitable growth."
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.
The group operates brands in 18 countries across six separate sectors: Technical & Industrial; IT, digital & design; financial; retail; executive search; and healthcare.
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.
Almost all of the company's net fee income (NFI) comes from recruitment, with a bias towards temporary staffing, which accounts for 61% of NFI.
Over half of the group's brands operate in more than one country, and geographically the group's operations divide into three areas: the UK; continental Europe; and the Rest of the World.
For Empresaria, the Rest of the World is essentially Asia Pacific and, increasingly, Latin America – although the US has now come into play with October’s deal.
On the European mainland, the focus is very much on Germany, and not just for the obvious reason of the nation's economic growth prospects, as the country is behind many of its European neighbours in terms of using temporary staff but is catching up.
In Latin America, the group is already represented in Mexico and Chile, and it is eyeing Peru and Colombia. All four countries are members of the Pacific Alliance, a free trade zone with strong links to the US, so the growth prospects are enticing.
As for the sectors in which Empresaria operates, almost three-quarters of net fee income comes from the big three: Technical & Industrial; IT, Digital & Design; and Financial.
Empresaria shares, up 115% in the last year, advanced a further 4% to 87p after the trading statement.
This still only values the business at £43mln, or around eight times forward earnings. Empresaria should be on a “double digit” multiple of earnings, Arden said.
It concluded: “We believe the current share price represents a valuation anomaly providing scope for material outperformance should present growth trends be sustained.”