The New Criterion: two new stocks take the drudgery out of staff management

Tim Boreham

Independent Investment Research

The number one imperative of managing staff is not to provide the troops with chocolate biscuits in the tea room or a subsidised gym, but to pay them accurately and on time.

“If you stuff up someone’s pay you will be forever in the bad books,” says Paygroup (PYG) chief executive and co-founder Mark Samlal. “You just can’t afford to do that.”

With that in mind, the recently-listed Paygroup is tackling the Asian market, where its multinational clients have to cope with an array of different rules and cultures.

On behalf of 410 clients, the Singapore based Paygroup operates two divisions: business process outsourcing (payroll services) and human capital management software (other HR stuff such as expense and leave management).

Samlal says Paygroup, which operates in 18 countries, faces “all levels of sophistication”. The clients are generally based in Singapore or Hong Kong or, increasingly, Kuala Lumpur.

But they have a habit of expanding into the smaller and less developed economies and they expect Paygroup to follow them. For instance, one client has taken over a plant in Myanmar which not too long ago was a closed dictatorship (and if you’re a Rohingya, it’s still got its issues).

The company handles 80 percent of the work itself, but uses third parties in countries such as Pakistan, Bangladesh and Sri Lanka. “We pay people in over 525 cities in India so we have a strong capability there,” Samlal says.

Paygroup shares have bounded from the blocks since the company listed on May 25, having raised $8.5m at 50c apiece.

The buoyant performance was helped along by the lack of pre-IPO investors, which meant there wasn’t a conga line of punters selling out on the first day.

The float was also priced to sell, as measured by guidance of sharply higher earnings for the year to March 2018.

The listing was a case of third time lucky for Paygroup, which tried to debut last year based on an acquired operation called PeopleHR based in Colombo, Sri Lanka.

“It didn’t perform so we pulled the prospectus in early September and decided to list our own company,” Samlal says.

The float was the further delayed after ASIC expressed concern about unaudited half year accounts.

Paygroup’s board seems well-credentialled: its chairman Ian Basser was the former head of the ASX-listed recruiter Chandler Macleod, which was taken over.

Director David Fagan was the former chief of law firm of Clayton Utz and is on the Medibank Private board.

Paygroup generated a $477,000 net profit on revenue of $5.94m in 2016-17, but expects a $2.61m profit on revenue of $7.3m for 2017-18.

Paygroup’s revenues tend to be reliable and clients are on an average three-year contract. Unless the aforementioned “stuff ups” occur, they won’t change provider.

At the time of listing Paygroup traded on an earnings multiple of a mere eight times; now it’s more like 12 times.

While Paygroup doesn’t have a directed ASX-listed peer it shares characteristics with Elmo Software (ELO, $5.54), which provides technology for HR and payroll functions but doesn’t execute these processes holus bolus.

There’s also some overlap with salary packagers McMillan Shakespeare (MMS, $16.31) and Smartgroup (SIQ, $11.68).

“I don’t want to sound like a smarty pants but there’s no-one on the ASX quite like us,” Samlal says.

Serko (SKO) $2.78

Still on staff management: the process of booking corporate travel has been manual and ponderous, usually involving visiting multiple service provider sites.

The more parties involved, the higher the likelihood of a snafu.

“Travel is of one the most personal things,” says Serko co-founder Darrin Grafton. “You don’t want to turn up at an airport without a ticket or arrive without a hotel booked.”

But it’s the New Zealand based Serko’s artificial intelligence, rather than the personal touch, that strives to prevent double bookings, non-appearing hire cars or corporate travel rule breaches that result in humble functionaries living it up in business class.

Called Zeno, Serko’s robotic tool predicts the booking behaviour of staff and recommends flights, hotels and other services accordingly.

It even compares dates on online calendars to ensure that the marketing manager doesn’t arrive for a sales conference that was held two days earlier (probably didn’t miss much).

Meanwhile Serko’s eponymous platform processes 20,000 bookings per day and is used by 70 percent of Australian corporate travel companies as well as companies such as Wesfarmers, Santos, Fortescue Metals and Telstra.

Mind you, the latter will have less of a need to move around middle managers after last week’s announced cull.

Don’t be alarmed if you’ve never heard of Serko because much of the business is white-labelled: for instance it’s the platform behind Flight Centre’s corporate booking business.

Grafton says “we don’t care what brand is visible as long as we are making money’’ – and we can’t argue with that.

Serko has been listed on the NZ Stock Exchange since 2014. The stock was the bourse’s best performer in 2017, surging from 29c to $2.19 and making multimillionaires out of Grafton and co-founder Bob Shaw.

The company listed on the ASx last Monday. But unlike the accounting software gaint Xero which is now exclusively ASX listed, Serko will maintain an NZ listing.

Given Serko gleans about 95 percent of its revenue from across the ditch, it’s perhaps surprising the company has taken so long to list here.

“A lot of Australian institutions have visited us but many have mandates that prevent them from buying the stock unless we have an ASX compliance listing,” Grafton says.

“But we wanted to be in a pretty good financial position before flicking that switch.”


The switch-flicking moment came after Serko recorded a $NZ2 million ($1.86m) net profit for the half-year to March 31 2018 compared with a $NZ3.3m loss previously,  on revenue of $NZ18.3m (up 28 per cent).

The company expects to remain profitable, even as it spends a decent sum on US and British expansion.


The dilemma for shareholders is whether Serko’s $200m market cap just about does it.


Tim Boreham edits 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.















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Tim Boreham
Tim Boreham
Editor of New Criterion
Independent Investment Research

Many readers will remember Boreham as author of the Criterion column in The Australian newspaper, for well over a decade. He also has more than three decades’ experience of business reporting across three major publications.

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