Berenberg slashes Staffline price target ahead of 'significant challenges'

Staffline, which had belatedly released its 2018 annual results earlier in the session, noted its outlook for 2019 remained challenging.

Berenberg highlighted how Staffline had stuck to its recently reduced guidance for underlying earnings of £23-28m, the same range that it had guided towards on 17 May on the bak of a shift in its customers' demand profiles away from temporary workers, a slowdown in demand in higher-margin sectors such as automotive and driving, and a weaker-than-expected pick up in demand for work under the Apprenticeship Levy.

While Staffline's 2018 numbers were actually in line with prevailing expectations, with staffing revenue coming in at £1.02bn, up 21% year-on-year, a tough macro environment and the company's exposure to retail and automotive-focused assets saw the group turn in lower organic growth.

The German broker also noted that no further comments had been made regarding the National Minimum Wage review, with Staffline's management seeing the issue as "resolved".

"With a market cap of c£42m and an EBITDA multiple of 4.5x for 2019 and 3.2x for 2020 the shares have priced in a lot of the negativity – understandably, given the high level of uncertainty," said the analysts, who also slashed their price target on the firm from 1,250p to just 150p.

"However, these are significant challenges to overcome and we expect the stock to remain a special situation for the foreseeable future."