Empresaria’s H1 results confirm the message of July’s trading update, and the outlook for the full year – continued growth in Net Fee Income (NFI) and EPS. Net Fee Income was up 26% (17% at constant FX), adj. Operating Profit +23% (9% at constant FX). This has been delivered against a mixed background for the wider peer group. The big generalists such as Hays or Randstad have maintained growth, but some of the specialist peers (notably Impellam plc.) have encountered headwinds. Empresaria has benefitted, in our view, from a balanced geographic footprint and from its multiniche customer industry base. The company has noted that there has been a slowdown in hiring processes in the UK post-election, but overall the group is on track, and we maintain our FY forecast of 19.5% earnings growth, well ahead of the sector trend.
The biggest driver of H1 Net Fee Income and Operating profit was the contribution from the major investments made during 2016 - Rishworth Aviation and ConSol. We believe that the strategy of targeted external investments remains a key value driver going forward.
It is important to note that the operating profit growth has been achieved in spite of charges (£0.5m) for integration and growth enhancement, within the newer investments and also the existing portfolio. This is one of the reasons for the reduction in the conversion ratio (Net Fee Income into Operating Profit) to 14.2% from 14.8% a year earlier. We expect this conversion ratio to resume an upward trend as the benefits of these above-the-line investments feed through.
The shares have gained 35% YTD. However, the current valuation still represents a P/E of only 10.4x on our FY 2017e forecast. We maintained the view that Empresaria’s growth profile is consistent with a P/E of 12.5x, which would mean a share price of 169p, 20% upside from the current level.