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Buy Staffline #STAF says VectorVest. Strong track record, plus the stock continues to offer plenty of capital and dividend growth potential.
Established in 1986, Staffline (STAF.L) is now the UK’s market leading Recruitment and Training group. It has two divisions namely Recruitment and PeoplePlus. Staffline Recruitment is the UK’s leading provider of flexible blue-collar workers, supplying over 60,000 staff per day to c. 1,500 private sector clients, across a wide range of industries including agriculture, drinks, driving, food processing, logistics and manufacturing. It operates from over 400 locations in UK, Eire and Poland. The PeoplePlus Division is the leading adult skills and training provider in the UK, delivering apprenticeships, adult education, prison education and skills-based employability programmes across the country.
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On July 25th 2018, STAF published interim results to June 30th 2018. 
Group revenues grew 12.4% to £481m, while underlying PBT fell 6.8% to £15m following four acquisitions and digital investment into Recruitment, and the acquisition of LearnDirect Apprenticeships for PeoplePlus. Underlying diluted EPS fell 5.8% to 47.2p, while the interim dividend was increased by 2.7% to 11.3p. CEO Chris Pullen said STAF had made an excellent start in what was the first year of a five-year growth strategy to increase underlying diluted EPS to 200p. He added, “We are confident that the strategic decisions taken in the first half of 2018 will enable us to deliver our current 2018 expectations and provide the basis for our continued future growth.”
STAF first came to the attention of VectorVest as the key RT (Relative Timing) metric ticked up over 1 in early April 2018. A sharp drop to year lows of 880p in June flagged further alerts, since which time both the share price, and RT numbers have moved sharply higher. Today, the STAF RT metric, (a fast, smart indicator of a stock price trend) logs the stock at 1.46 – excellent on a scale of 0.00 to 2.00. The RV metric, (an indicator of long-term price appreciation potential) logs STAF as good value at 1.39 (on a scale of 0.00 to 2.00), and the stock also registers an excellent GRT (Earnings Growth Rate) rating of 21%. Despite trading at 1,208p, VectorVest still sees further upside for STAF shares through to a current valuation of 1,575p.
To highlight the long-term performance of STAF.L the price action over the last 8 years is shown above with earnings per share (EPS) shown in the window below the price. The share has been trading within a consolidation pattern since 2016 and is presently nearing a breakout of that pattern. The 8-year weekly chart above presents a very bullish situation if such a breakout should occur with a technical target of over 20 pounds over the next few years. The technical target is based on the size of the trending move from 2011 to 2016. The share is on a Buy recommendation on VectorVest after charting a double bottom pattern at support during 2018.
Summary: During the thirty-two years it has been in existence, Staffline has delivered impressive and consistent growth as a company. Indeed, sales revenues for the past ten years have increased at a compound annual growth rate of 25%, so the company’s target to grow underlying EPS to 200p in five years is a claim to be taken seriously. With this in mind, the sharp drop in the shares in June prior to the interim results provided an excellent opportunity to pick up the stock at a discount. Notwithstanding the sharp recovery since then, VectorVest remains of the opinion that STAF continues to offer investors plenty of capital and dividend growth potential with a decent margin of safety. Buy.
Dr David Paul – August 22nd 2018
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Ken Baksh – When is a trust not a trust?
When is a trust not a trust?
Many of my regular readers will know of my preference for investment trusts (closed end funds) over OEIC’s (unit trusts, to those of a certain era!). I come clean on the fact that my formative City years in the late 70’s and most of the 80’s were spent with one predominantly investment trust institution!
However, that bias aside, and, even though the abolition of trail commission has levelled the playing field somewhat between open and closed end funds, there are still many other current reasons why I think investors should always include analysis of investment trusts, certain ETF’s and unit trusts before making their final choice of pooled investment vehicle. There can be nothing worse than correctly identifying the asset class, but then picking the “inappropriate” vehicle within that class!
Numis have recently conducted their annual analysis showing that equity focussed investment trusts have outperformed open ended funds, whether in NAV total return terms (thus eliminating the effect of fluctuating discounts), or price total return terms (i.e. in the investor pocket) in at least 75% of the cases over the last five and ten years. In fact, over the last ten years, in price total return terms, investment trusts have outperformed unit trusts in 15 out of 16 sectors…. The one exception being Japanese small companies. I reproduce their statistics below (Appendix 1) …thanks to Morningstar and Numis Securities Research!
Performance is clearly a major positive issue. There are however seven or eight other reasons why investors should consider investment trusts as part of their due diligence process when considering pooled investment vehicles.
- Investment trusts allow managers to take a longer-term view; they do not have to sell assets when investors sell their units, unlike unit trusts. Investment trusts are well suited for assets that are hard to sell quickly, like property and infrastructure. As a recent example, property investment trusts very substantially outperformed property unit trusts after the Brexit vote. In fact, some of the unit trusts placed time restrictions or financial penalties on selling investors, and still hold excessive amounts of cash, which dilute any recovery in the underlying asset.
- Unit trusts distribute their income on an annual basis, while investment trust managers can accrue revenue reserves for a rainy day! Despite the widespread dividend cuts around 2008-2009, many investment trusts were still able to maintain their records of paying out and growing dividends. There are two or three investment trusts that have actually racked up about 50 years of consecutive dividend increases, spanning at least the four major market “crashes” since my time in the City!
- Investment trusts are also subject to market discipline. If performance dips, the board of the investment trust can hold the manager to account and, in extreme cases, replace him. This has happened, and there have been more cases of investor activism e.g. Alliance Trust which have prompted personnel moves….and usually, improved investor return.
- A related issue is the possibility of outside corporate action. A one stop approach in acquiring a chunk of assets, sometimes at a large discount either to merge into another financial group or for other reasons may make sound commercial sense. For example, the British Coal Board Pension fund took over one of my old stable TR Industrial and General in 1988, and more recently, one of my recommendations in the specialist area of Japanese real estate,Japanese Residential Investment Company was taken over at a substantial premium (approx30%) late 2015 by one of the Blackstone Funds.
- Many, but not all, investment trusts use gearing, which can provide a boost to returns when markets rise and with current borrowing rates so relatively low compared with income returns from many stock market sectors. However, the opposite can be true….so an advantage or disadvantage! Extra homework and diligence required!
- Unit trusts tend to be priced just once a day so that investors do not have perfect visibility over the price they pay. This can be especially true when unstable market conditions are prevailing. Investment trusts tend to be traded live so investors have a better feel for what they are paying and can finesse their entry/exit points.
- The subject of a fluctuating DISCOUNT is of course, a two-way argument and can produce an element of complexity and unpredictability into investment trusts, especially for inexperienced investors. As with gearing, price performance and final cash return to the investor can be enhanced/weakened by inappropriate gearing relative to the overall market background. As a sweeping generality, out of favour markets, tend to be accompanied by wider discounts, and it is often in these periods, that longer term value investors can benefit. As an example, over the last five years, Europe and Japan have received new investor attention and this can be seen by the superior price performance over NAV performance in the table below (i.e. discount narrowing), while in the case of the defensive UK Equity Income sector, discounts have widened over the same period.
- Finally, the subject of relative pricing is as long as a piece of proverbial string with AMC’s, performance fees, initial charges, platform fees and dealing fees being thrown into the comparison pot, but in general, especially if the one off initial charge can be heavily discounted or eliminated, the differences have narrowed over recent years and unit trust are no longer significantly more expensive than investment trusts from a dealing perspective.
In summary, do not ignore investment trusts!
I can provide a service of stock selection or even construction of an entire investment trust portfolio if desired. Feel free to contact with your requirement.
Appendix 1
by Ken Baksh
Ken has over 35 years of investment management experience, working for two major City institutions between 1976 and 2002.
Since then he has been engaged as a self-employed investment consultant. He has worked with investment trusts, unit trusts, pension funds, charities, Life Fund,hedge fund and private clients. Individual asset managed have included direct equities and bonds pooled vehicles currencies, derivatives and commodities.
Projects undertaken in a number of areas including asset allocation, risk control, performance measurement, marketing, individual company research, legacy portfolios and portfolio construction. He has a BSc(Mathematics/Statistics) and is a Fellow Member of the UK Society of Investment Professionals.
Disclaimer
All stock recommendations and comments are the opinion of writer.
Investors should be cautious about all stock recommendations and should consider the source of any advice on stock selection. Various factors, including personal ownership, may influence or factor into a stock analysis or opinion.
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Please contact Ken, (kenbaksh@btopenworld.com) for further information