Yesterday USG People held an investor days at its headquarters in Almere.
- Hubert Vanhoe, COO Professional Solutions & Specialist Staffing spokeabout the international rollout of the Legal Professionals and the growth plans for the USG Professional division. The total addressable market for legal services in the selected markets is estimated at € 870m in 2016. USG’s Legal Professionals aims for i) 10% market share mainly through organic growth and start-ups in France, Luxembourg, Germany and Switzerland, ii) the no.1 position in continental Europe and iii) at least no.2 in each country. This implies that the current € 20m sales in FY11 with 3% market share is aimed to increase to € 90m by 2016 with 10% market share.
- Christine Van den Eynde, Vice President of Secretary Plus, presented the brand’s growth story and strategy. The Secretary Plus brand has branches in Belgium (16 branches), the Netherlands (28), Germany (9), France (3), Spain (3), Austria (4), Switzerland (2) and Italy (2) and the target is to reach € 150m sales in FY15. New branches will mainly be opened in Germany, Austria, Italy and Switzerland.
- Eric de Jong, COO General & Specialist Staffing presented the new distribution model, which will offer a more flexible organisation structure. The 3 key roles in a branch are defined as 1) specialist recruiter, ii) sales consultant and iii) accountant consultant. The piloting process, which will take 6 months, has recently started.
EBITA margin target reiterated: The company reiterated its aim to achieve an average EBITA margin throughout the cycle of 6.0%. This compares to an average EBITA margin of 4.4% over the last 7 years. The company wants to close the gap by i) increasing the conversion ratio (measures: 450 branches are closed, investments in IT, flatter organisation structure, integrated opcos in NL, and SP), ii) reduce volatility in the profit margin (increase flexibility of the cost structure), iii) and business mix improvement (higher margin segments).
Recent trends: At the beginning of the month, management said that sales growth was -6% for the group in January. 1Q12 sees difficult comps as sales grew by 14% in 1Q11. In yesterday’s update, USG reported that in the first two months of 2012, revenue per working day was down by 11% y/y and revenue per working day in February was flat compared to January. The decline in total revenues was better than this -11% as February saw one more working day. In January and February, the gross margin was stable compared to last year while operating costs were lower than last year with the decline fully in line with the previously announced cost savings for 2012. EBITA rose in the first 2 months of 2012 compared to last year.
Conclusion:
The company’s first investor day gave more insight in the company’s strategy and its operations in particular. We maintain our Accumulate rating and DCF-based target price of € 11. We think that investors who are willing to take a risk should give the stock a change based on the undemanding valuation. However, USG’s competitive position has weakened in our view in recent quarters, in all countries except Belgium, profitability needs to improve and earnings risk is still present.