Shares in Staffline (STAF:AIM) have collapsed to multi-year lows after the recruitment and training firm put out a massive profit warning as trading slumps in the first quarter on Brexit woes.
At 10am the stock is trading at 400p, a staggering 52% down on the 838p at which the stock closed on Thursday.
The company's core recruitment business has been hit by a wave of negative sentiment with temporary hiring weak, margins down and new contract momentum slowing.
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The ongoing Brexit uncertainty is impacting the UK temporary employment market and has led to ‘a number of customers transferring a significant volume of their temporary workforce into permanent employment to mitigate the risk of that labour market tightening’.
SHIFT MEANS LOWER MARGINS
Staffline specialises in supplying flexible blue-collar workers to the agriculture, drinks, driving, food processing, logistics and manufacturing industries.
The company says it expects the current uncertainty to continue to depress temporary recruitment ‘throughout the current year’.
The shift from ‘temp to perm’ is also impacting margins. In particular the company has seen a sharper than expected fall in demand from the higher-margin automotive sector and associated supply chain.
At the same time a high number of transfers have occurred in the higher-margin driving sector, resulting in a further dilution of group margins.
DELAYED RESULTS AFFECTING CONFIDENCE
Compounding this is a slowdown in new contract momentum caused by the delay in publishing the full year 2018 results. The key issue in finalising the results is the firm’s past compliance with the National Minimum Wage Regulations 2015.
The statement says: ‘This is a complex area and management, in conjunction with HMRC and supported by an independent advisor, are assessing the significant amount of historic data and transactions, which will then be subject to audit’.
When the firm originally announced at the end of January that its results would be delayed, its shares fell 33% to 670p and had to be suspended. Having re-started trading in March they were trading just shy of 900p earlier this month.
EARNINGS FORECASTS CUT SHARPLY
The outlook isn’t particularly reassuring, sadly. Given that the business is fairly seasonal and the first quarter normally only accounts for 15% of annual earnings, April is the key indicator as to how the year will turn out.
The company says that ‘with visibility of that trading, and as a consequence of the broad range of factors highlighted above, the board now expects the company to deliver adjusted earnings before interest and tax (EBIT) in the range of £23m to £28m for the financial year ending 31 December 2019’.
That compares with previous expectations of £43.1m EBIT this year to 31 December 2019, according to analyst consensus estimates from Reuters Eikon. EBIT of around £39m to £40m is anticipated for 2018, although those results have still to be published.
