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CHRIS GILMOUR: Staffing company Workforce does well during lockdown with its training courses

The outcome of the company’s diversification strategy is a growing proportion of profits being generated from its various segments, says the writer.

Workforce Holdings is a tightly held small-cap company that has been morphing from a staffing business to being more of a people-centric investment company.

There are a number of reasons for this transformation, not least being greater profitability in the non-staffing segments of the business. And staffing is not especially well regarded by the trade unions, which still insist on referring to such companies as labour brokers.

The recent unemployment figures highlight that SA has the dubious distinction of having the highest unemployment rate on Earth, and that has been worsened by the effect of the pandemic. Against that background, well-structured staffing companies such as Workforce can help to alleviate this chronic situation

not just through their placing of expertise but also by upskilling people with learnership and similar programmes.

Unlike developed economies such as the US and the UK and most of Europe, SA does not find itself in the situation of having vast numbers of unfilled vacancies. These countries have all spent significantly more on stimulus programmes during the pandemic by, for example, putting millions of people on long-term

furlough rather than retrenching them. Now, as restrictions are progressively eased, companies are facing extreme difficulty in finding people to fill positions that were made idle during the height of the pandemic. This is not the case in SA.

But the large-scale retrenchments in SA associated with the various lockdowns may at long last have run their course. Against this difficult background, Workforce did well to greatly improve revenue and earnings per share. Its relatively strong balance sheet allowed it to make further acquisitions during the period.

Revenue for the interim period to end-June 2021 rose 29% to R1.6bn, admittedly from a low base of comparison at the depths of the pandemic in 2020. Headline earnings per share (Heps) rebounded from a loss of 8.5c at June 2020 to a positive 11.2c at June 2021.

The group demonstrated agility during the past six months, putting much emphasis into its various training courses aimed at upskilling individuals. Work was done in adapting to pandemic and lockdown conditions, such as having smaller classrooms and moving to online training. Training was the best-performing

segment of the group, from a recovery point of view, but from an absolute contribution perspective, staffing was still the best contributor.

The pandemic also resulted in a change in the mix of industries in the SA economy, with certain industries such as logistics, e-commerce, warehousing, food manufacturing and transportation being especially relevant in terms of keeping the economy going in the strictest lockdown periods. The staffing segment

successfully embarked on offering staffing and outsourcing solutions to these industries and augmented the group’s existing strong relationships in the mining, oil and gas sectors. The group has established a large pool of skills over time, many of which are exportable into the rest of Africa and beyond.

The Workforce share price has been a highly erratic performer in the 14 years since listing. Much of this is due to the share being tightly held, with only about 8% of the issued equity being available for investment by the public. From its peak of 244c in January 2017, it fell 63% to 89c before staging a recovery to the

current level of 126c. At this share price, the price-earnings ratio is an extremely low four times. No dividend was paid at the interim stage.

Forecasting the next six months’ earnings is difficult as there are a lot of moving parts to this group and it remains vulnerable to the effect of any further pandemic-related lockdowns. However, weighed against that is the fact that Workforce has weathered the pandemic storm well up until now and, in the absence

of any further restrictions, should exhibit reasonable growth in earnings for the full year to December 2021.

The poor tradability of the share will probably remain a feature of Workforce until the price reaches a significantly higher level, at which point some of the more heavily entrenched investors may consider selling.

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