Skilled Group (ASX: SKE) is Australia and New Zealand’s leading provider of staffing solutions, providing services such as flexible labour hire, workforce management, project-based workforce solutions and shutdown, relocation and installation solutions.
Skilled Group provides these staffing solutions largely to the industrial, mining and oil and gas sector as well as the healthcare sector. With a market capitalisation of $750 million and over 170 offices spread throughout Australia, NZ, UK, Malta and the UAE, the company is a true barometer of both blue and white collar labour demand.
For the full year Skilled reported revenue declines of 1.1% to $1.87 billion, but pleasingly managed to boost underlying net profit after tax (NPAT) by 11.6% to $58.4 million and underlying earnings per share (EPS) by 11.5% to 25 cents per share (cps). The improved profits were partly thanks to a transformation program that reduced costs and partly thanks to a 50% reduction in net interest expense. The board declared a final dividend of 9 cps (up from 8 cps last year) which takes the full year dividend to 16 cps (up from 13 cps).
Today also saw Chandler MacLeod (ASX: CMG) report its FY 2013 results. Chandler MacLeod is a recruitment firm that also provides labour services to the mining and mining services sector including trades people, skilled and semi-skilled labour. The firm’s recruitment division works broadly across most sectors of the economy including IT, health, accounting, banking, sales and marketing.
Much like Skilled’s results, Chandler MacLeod bottom line was better than the top line. The firm reported lacklustre revenue which declined 9.3% excluding acquisitions but managed to benefit from cost savings which helped the boost underlying NPAT by 8% to $18.6 million and the final dividend by 13% to 1.8 cps. This brings the full-year dividend to 3.2 cps, up from 2.8 cps last year.
Management at Skilled stated that “trading conditions are expected to remain challenging in some business segments with subdued activity levels expected to continue in 1H FY14, supported by growth in other segments.” Management at Chandler MacLeod said in its outlook comments for FY2014 that “business confidence is still at quite a low level, and the mining sector continues to retreat from its highs.”
While Skilled Group is expecting to realise a further $10 million in saving this year through the ongoing transformation program at 13 times earnings and given its low margin business and cloudy outlook, this is probably a stock best kept on the watch list for now.
The same slowing business cycle and margin pressures face Chandler MacLeod and when coupled with its balance sheet, which carries a significant debt load, investors would probably be best off leaving this one on the watch list for now too.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.