An earnings beat and a dividend increase pushed Programmed Maintenance Services Limited (ASX: PRG) to a one-week high this morning despite a weak start for the broader market.
Shares in Programmed jumped 3% to$2.63 while the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) slumped 0.5%.
The staffing and project services group reported a 4.5% drop in adjusted earnings per share (EPS) to 25.7 cents on flat revenue of $1.43 billion for the year ended March 31, 2015.
This was slightly ahead of consensus EPS estimates of 24.9 cents a share and the group's decision to lift its final dividend by 4.5% to 11 cents a share would also have pleasantly surprised many.
The bad news is the margin squeeze that's driven by weakness in its integrated workforce division and resources division.
Integrated workforce supplies blue collar labourers to a range of industries while the latter supplies workers to the oil & gas sector.
But the poor performance of these two divisions has been partially offset by strong growth in its property and infrastructure business, which saw a 16% increase in earnings before interest and tax to $32.4 million and a 7% lift in revenue to $807.6 million. This business is the biggest in the group.
Programmed's full year result shows how well Skilled Group Ltd. (ASX: SKE) could fit into its operations and I think it makes a lot of sense to merge the two.
Skilled's oil & gas division was the star performer in the group at the half-year result in February with a 71% jump in revenue thanks to its acquisition of Thomas & Coffey and a new contract for the Gorgon gas project.
Skilled's blue collar business was also negatively impacted by the downturn and merging the businesses would give the combined entity greater market power to weather the industry headwinds.
Programmed's first merger proposal in December was rebuffed by Skilled but both companies are now back at the negotiation table after Programmed agreed to sweeten the offer for Skilled.
I believe a deal can be struck and I would buy Skilled shares as an entry into the merged entity.
Programmed is trading on a price-earnings (P/E) multiple of a little over 10x for 2014-15, while Skilled is on a P/E of 6.4x.
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