Skilled Group Limited (SKU)


Share Tips - Skilled GroupSkilled Group (SKE) is an established national workforce services company and is listed in our traders report as a share to buy as of April 10th 2013. It has over 170 offices spread across Australia, New Zealand, United Kingdom, Malta and United Arab Emirates.

SKE has a broad service offering to suit changing client needs. Its three main divisions are;

>> Workforce Services, which provides labour hire services to the mining sector
>> Technical Professionals, which provides professional and white collar staffing
>> Engineering and Marine Services, which provides contract maintenance and engineering, as well as offshore marine staffing and management services

SKE has a strong position in key growth markets and sectors, namely mining & resources, oil & gas, and civil & infrastructure.

1H13 results

In February, SKE reported a 17.4% increase in 1H13 net profit to $29.2 million. This was delivered on the back of a 4.1% rise in sales to $973.6 million.

The company grew its profit against the backdrop of a weak macroeconomic environment. Specifically, Workforce Services suffered from lower volumes due to the mining slowdown.

Because SKE is diversified across different industries, Technical Professionals revenue climbed amid demand from the oil & gas and telco sectors.

The group is still in the process of cost reductions with the automation of key process and systems including; integrated rates calculator, candidate on-boarding, re-developed web portals and continued centralisation of distributed activities.

The cost cutting initiatives led to $5 million in indirect savings during the half, and SKE expects to deliver a total of ~$10 million in cost reduction over FY13.

Valuation upside

Whilst the group anticipated challenging conditions for its Workforce Services division would continue in 2H13, demand from the oil & gas and telco sectors would help soften the blow.

When factoring in expected cost savings, we think Workforce Services will experience a 2H13 earnings rebound. Trading on an undemanding one-year forward P/E of 14.3x, we believe the impact of a challenging mining sector outlook is at least partly factored into the share price.

Outlook

SKE’s 1H13 results impressed the market, and we expect the momentum to carry into the rest of the year. Although the outlook for Workforce Services remains somewhat uncertain, SKE’s cost cutting program should continue to provide a degree of support for the division’s earnings.

Also, Engineering and Marine Services is experiencing healthy growth in revenue and EBITDA due to the group’s exposure to the oil & gas sector. The division is benefiting from increased activity in new project and maintenance contracts, which is likely to translate into more revenue growth.

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