Empresaria Group Plc (LON:EMR) has enjoyed a substantial re-rating as the group has delivered against expectations and as profit forecasts have been upgraded. Yet the company continues to be valued at a significant discount to its mid-cap peers. We expect the discount to narrow assuming trading continues to improve, and as the share gains increased recognition. A virtuous circle of higher profits, higher rating, higher market cap, greater recognition would clearly continue to benefit investors, if management can continue to deliver.
► Business: Empresaria is an international staffing group with a broad geographical spread, a range of brands servicing six key professional business sectors, and a focus on temporary as opposed to permanent staff. It was founded in 1996.
► Strategy: The vision of the Group up is to be a leading international, specialist staffing group delivering a quality service to customers and candidates that generates sustainable growth in earnings per share. The diversification of geographical and sectoral exposures is a key element of this strategy.
► Valuation: Empresaria continues to be valued at a discount to its mid-cap peer group, although it is rated in line with similar sized peer Harvey Nash. SThree Matchtech, and Staffline are mid-cap peers which enjoy a significantly higher rating, although some discount for liquidity is warranted.
► Risks: Main risk for staffers is an economic downturn. Economic growth remains stubbornly low, with Emerging Markets in the doldrums, but the US continues to grow and there are signs of an incipient recovery in Europe. Empresaria has some earn-out commitments, but these are manageable.
► Investment summary: The UK staffing sector is on a mid-teens prospective P/E, for mid-teens+ EPS growth. The UK sector has been trading on a premium to the global averages, partly reflecting the more developed economic picture here. Empresaria Group Plc is currently trading on 10.4x 2016 EPS, and 6.6x EV/EBITDA. These are modest multiples, and lower than peers.
