Workforce Holdings (WKF) - Overvalued
An initiation report on Workforce Holdings, an employment services group. Workforce commands only a c.3% share of the local temporary employment market and has begun to make progress with a regional expansion drive. Locally, the employment services industry remains highly fragmented which limits pricing power for larger participants. The largest participant locally has c.15% market share.
The group's strategy to diversify its earnings away from its employment service division has contributed to a sustained earnings recovery. That said, employment services still dominate revenue and EBITDA (FY2016: Staffing revenue contributes 91% to group revenue and 80% to EBITDA).
Since the introduction of new labour laws in c.1995, demand for temporary staff showed significant growth (c.+50%) slightly ahead of the demand for permanent staff. Around 50% of temporary staff now work in the retail/Wholesale sector. However, a number of misconceptions surrounding the temporary staffing industry persist, thus limiting its growth potential.
Opportunities for further growth within the sector depend on policy certainty (the mining sector, education as well as SOEs), South Africa's credit rating, the pace of labour law reform and how businesses respond to reforms.
The introduction of a national minimum wage in May 2018 is, in our view, more likely negative for the demand for staff over the short-term as businesses adjust.
Workforce Holdings Limited is a South Africa-based investment holding company. The Company, through its subsidiaries, is engaged in the business of staff outsourcing, recruitment and specialist staffing, training and consulting, and employee health management, among others. The Company has five segments: Staffing and Recruitment, which offers human resources, permanent and temporary placements, advertisement-response handling, executive search, call center staffing, and importing and exporting of skills; Training and Consulting, which is a training provider focused on delivering industry and job-specific skills assessments, and training interventions to business and their employees; Financial and Lifestyle Products, which offers lifestyle products and support services to employees; Employee Health Management, which offers occupational and primary health management services, and Process outsourcing, which focuses on delivering business process outsourcing solutions.
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