The New Criterion: hard labour for the recruitment firms

Until Seek came along, recruiting was pretty much about bunging an ad in Saturday’s classifieds and sifting candidates based on their ability to write a semi-coherent application.

Or in the case of Melbourne, it was more about the old school tie they wore -- and perhaps nothing much has changed.

Of course the bulging papers are long gone, but the disruption continues.

These days, job seekers are more likely to belong to ‘talent communities’ and post on jobs boards, with their applications sifted by impersonal algorithms.

Even the great disruptor Seek (SEK, $20.65) is feeling the effects of the fast shifting landscape, but the company still grew revenue by 25 percent and ebitda by 15 percent in the 2017-18 year.

For the rest of the sector, it’s been hard labour for the upstarts and the stalwarts alike. No matter how clever, new business models have struggled to gain traction in a sector that remains fragmented and heavily competed.

Further threats are likely to arise from jobs automation and the intentions of Google, which has launched a portal in the US called Google for Jobs.

In the traditional white-collar sphere, accounting and legal recruiter Ambition (AMB, 12.5c) struggles to shake off the effects of the global financial crisis. But the firm is modestly profitable and is eyeing an opportunity in specialist recruitment for start ups, especially in Asia.

Ashley Services (ASH, 24c) typifies the angst around the sector. Having listed four years ago, the Sydney-based recruiter and trainer has been around for almost 50 years but became embroiled in the training sector drama that led to the overhaul of the abysmally rorted Vet Fee Help scheme.

Ashley posted a $67m reported loss in 2015-16, including an ebitda loss of $6.7m. In May the company lost a contract worth 17 percent of its annual revenues, but expects this revenue to be more than offset with work from new and existing clients of its blue collar and skilled recruiting divisions.

Ashley’s half-year accounts showed stirrings of life: a $2.2m on revenue of $169m, a turnaround on the previous $5.1m loss. What’s more, its shares have almost quadrupled since plumbing their 7c low of a year ago.

 Rubicor Group (RUB, 2.3c) is another interesting recruiter to watch because it’s a substantive player in the local market with $180mj of annual revenues, but with a measly $8m market capitalisation.

The mark-down is well deserved, given the company’s near-death experience with debt that saw it bat on only at the grace of its bankers.

The company is only just profitable: ebitda of $200,000 in the December half. But its balance sheet is in better shape.

Rubicor boasts an impressive rota of local clients, including Google, Facebook, Westpac, Bluescope, Amcor, the ABC and Telstra.

Not that the latter two are doing much hiring these days.

Meanwhile, it’s a case of divergent fortunes for Livehire (LVH, 44c) and ApplyDirect (AD1, 4c), which both listed in June 2016 at 20c apiece.

 Backed by recruitment doyen Geoff Morgan, LiveHire curates a talent pool for every job in a client organisation.

A key difference is that candidates own their data and can join the talent pools of as many companies as they want.

ApplyDirect is more about by-passing the jobs boards and recruitment firms, so that candidates access jobs from employer websites on one carefully-catalogued page.

Across the broader listed cluster of recruitment stocks, performance has been highly variable. Rather like your average employee, come to think of it.

Some niche plays, such as HiTech (HIT, $1.10) have hit the bullseye with the IT recruiter’s shares almost doubling over the last 12 months and gaining more than ten-fold over the last three years.

However academic recruiter Schrole (SCL, 1.3c) has lost 25 percent of its value since back-door listing in October last year. With June quarter receipts of $438,000 and cash outflows of $169,000, Schrole may have to do a little bit more to avoid after-school detention.

While it’s clear that at least some of the recruiters will continue to struggle with executing their strategy, at least the macro conditions are favourable with local unemployment at six-year lows.

More corporate action is likely after two of the biggest ASX-listed recruiters – Chandler Macleod and Skilled Group – were taken over last year.

The former was acquired by Recruit Holdings of Japan for $290m, while Programmed was subsumed by Persol (also Japanese) for $778m.

 RBR Group (RBR) 0.6c

Or should investors look to more distant shores?

The obscure Perth-based resources recruiter is little known here, but is part of the scenery in Mozambique where Prince Andrew opened its new training centre in 2016.

Resources-wise, the southern African country is the place to be, with $US50 billion of LNG work slated across two major onshore projects.

In their development stage the projects will need 50,000 workers – and by law 19 out of every 20 have to be Mozambican.

This puts RBR in an enviable position.

A junior explorer that ran out of puff, RBR bought an administrative services company in Mozambique that was the springboard for its training and recruiting operation.

Having amassed a local database of 110,000 workers, RBR expects to be the first recruiter to obtain the requisite British Engineering and Construction Industry Training Board (ECITB) certification. The company currently is one a few to hold a labour broking licence in the country.

“Every worker needs an ECITB qualification and no-one in the country is registered to provide it,” says RBR executive chairman Ian Macpherson. “I’m sure there will be more (providers) but it’s just that we will be the first.”

Led by ExxonMobil and Anadarko, the two LNG consortia ventures are at final investment decision phase.

The Anadarko venture entails an initial 12 million tonnes per annum plant, building to 50 mtpa in phase two.

The ExxonMobil project is pitched at 15mtpa and involves building two of the biggest liquefaction plants outside of Qatar, the world’s biggest LNG producer.

Both plants are due to start construction in 2023 or 2024.

RBR currently has a contract with Anadarko lead contractor McDermott’s, but also hopes to sign directly with at least one of the two giants.

 Currently, RBR draws about $500,000 of revenue annually from non-LNG contracts, such as training stevedores in the country’s northern port which received its first commercial cargo in two decades.

The company also provides training at South32’s aluminium smelter at Mozal in the country’s south.

RBR’s value proposition is pretty simple: if it wins a mandate to sign up 5000 workers – 10 percent of the required number – that amounts to earnings of $10-15m per year on a profit margin of $15 per worker per day.

Given RBR currently bears a sub $6m market cap, investors don’t need the Duke of York’s seal of approval to see how enriched they could be if the Mozambicans plans bear fruit.

The rub is that the company had $340,000 of cash at the end of the June quarter and needs to raise more.

Tim Boreham authors The New Criterion

Disclaimer: The companies covered in this article (unless disclosed) are not current clients of Independent Investment Research (IIR). Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.