3 outsourcing and recruitment companies for an expanding economy

If a combination of the rising housing market and low interest rates is able to power the economy upwards, businesses should have more sales, but then they have to hire on more staff to cover the business expansion.

That’s where labour workforce services companies come to the rescue. When whole teams of skilled and professional staff are needed, even for short-term projects, these companies are called upon to fill in gaps and take up the workload.

HR outsourcing and recruitment company Chandler Macleod Group (ASX: CMG) has made some changes over the past year to diversify its business and expand its presence in Asia Pacific. This is to offset the recent weakness in the Australian economy, and get it ready for expected expansion over the next several years.

It acquired Vivir Healthcare, the leading allied healthcare brand, in late 2012 to position itself in the aged health care business, which it sees as a growing industry because of the growing aged demographic. The company can apply its own HR and staffing experience to the retention and rostering of Vivir’s healthcare clinicians for further growth.

In addition, it bought a 40% stake in Cornerstone Global Partners, a talent management solutions company that has exposure to China, and will allow it a low-risk entry into Asia’s largest market.

Its NPAT before abnormals growth has achieved an excellent result, rising over the past three years from $9.6 million to $18.6 million. Return on equity was 11.8% in 2013. It is offering a 6.81% dividend yield, and currently has a price-to-earnings ratio of 11.6.

Skilled Group (ASX: SKE) provides workforce solutions, maintenance services and project management, and operates domestically as well as in New Zealand, Europe and the Middle East. Its latest acquisition deal was announced in November, buying T&C Services Pty, a subsidiary of Thomas & Coffey (ASX: THO), for $33.5 million.

T&C Services provides maintenance and asset management services to manufacturing, mining, heavy industry and utilities in New South Wales and Queensland, and will give Skilled Group diversified revenue streams. The acquisition should be EPS accretive from 2015.

In 2013, NPAT before abnormals was up 11.5% from $52.38 million to $58.44 million, and over the past 12 months the share price has climbed 42.5% to $3.32.  Its PE ratio is 13.7

Staffing, maintenance and project services provider Programmed Maintenance (ASX: PRG) reported its half-year results, showing a 5% drop in revenue, mostly coming from the reduced earnings from its resources-related services.

Less work from mining was mainly offset by a 33% rise in earnings before interest and tax in its property and infrastructure segment. Overall, net profit was up for the group by 1%.

In the second half, its resources segment is expected to see improvement when marine services work involved with both the Wheatstone LNG project and the $100 million contract for the Ichthys project commences.

In October it purchased a 27.5% stake in the online recruitment business called Oneshift for $5 million. The service focuses on the temporary employment market. It can see how the future of recruitment is changing to a digital, user-focused format and delivery.

The company’s share price has been improving, up 48.7% in the last 12 months to $2.93, but it is still below its book value of $3.31 per share.

Foolish takeaway

These three companies’ performance represent the changing nature of the general economy, and rightly so because being connected to staffing and project services means they act like shock absorbers for the companies they serve. Expanding as the need arises, they can then contract when work slows down.

Investors should keep track of statistics like employment listings increases and falls to get a feel for how the jobs market is firming up. If you see more and more job listings appear, then that could be signaling better times ahead. Usually companies try to hold off on hiring and use the staff they currently have to do the job, yet when that becomes too difficult to keep up with increased business, the recruitment wave starts.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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