I had a very enlightening meeting in the City this week with the boss of a classic penny share company. What he told me really got me thinking...
Has the recruitment sector passed through the bottom of the cycle?
- Another success in the biotech arena as ImmuPharma (ticker: IMM) announces positive results of a trial for patients suffering from Systemic Lupus Erythematosus. Commonly called lupus, this chronic disease causes inflammation in various parts of the body, affecting the skin, joints and internal organs such as the heart and kidney.
- This is the latest in a stream of positive news from the maligned biotechnology sector, and further evidence that real value is being created here.
- Shares in ImmuPharma have run into some profit-taking today, but have doubled this year.
If so, there is money to be made in this notoriously boom and bust sector. And there is no shortage of ways to get involved.
Somehow this period of recession does not seem to have been quite as painful as the ‘Gizza job’ days of the Thatcher era. We have not seen the strikes and protests or heard the same anger.
Maybe this is because so many of the newly unemployed are young people looking for their first job, still free of mortgages and family responsibilities.
A glimmer of hope in a dull sector
Whatever the case, the dearth of jobs has made it a tough time for recruitment agencies.
They make their money by placing people into new jobs. If employers are not hiring then there is not much they can do except twiddle their thumbs and wait for the downturn to run its course.
That is what has been happening for the last couple of years, but now there is a glimmer of hope.
The last set of official unemployment figures for this country was nothing like as bad as had been feared, but I prefer to take my cue from people in the business.
One such person is Ken Ford. Ken is the chairman of AIM-listed Highams Systems Services Group (HSS). When I met him this week he told me he thinks we are the start of a four-year upturn in recruitment.
If he is right, Highams and several others will surely benefit.
There are plenty of ways to participate in the sector. Among the bigger groups are Michael Page (ticker: MPI), Hays Group (ticker: HAS) and SThree (ticker: STHR).
Among small companies different strategies are pursued. Some focus on the placement of permanent staff while others concentrate on filling temporary jobs.
Some are industry-specific, focusing for example on banking or IT. while others are job type-specific. Hexagon Human Capital (ticker: HHC), for example, finds senior managers to execute change programmes.
Some, such as Hydrogen Group (ticker: HYDG) do all their business in the UK. Others, like Harvey Nash (ticker: HVN), do business globally.
But in truth investors tend to be fairly indiscriminate, lumping them all together, and pushing their share prices up or down according to the economic climate.
Two penny share recruiters worth watching
Among the penny shares two are of interest. Highams is one of them.
Ford is a respected figure in the City, where he achieved a major turnaround at the broker Teather & Greenwood. Having taken a 20% stake in Highams when he joined in 2007, he is looking for a repeat performance.
He has removed the old board, raised some new capital, cut staff numbers in half and focused the business squarely on serving the customer.
Highams is a small company but it has a big reputation in the insurance industry, for which it has been finding suitably qualified staff for the last 26 years.
Investors with a good long-term memory will recall that ten years ago it had a stock market value of £50m. That is a far cry from today’s £2m value and is a measure of how far Highams’ fortunes have sunk.
But now there are signs of recovery. After years of losses, Highams made a profit in the six months to September and has since seen its business accelerate further.
Ford is targeting a four-fold increase in turnover over the next few years. He would also like to see the share price move up from the current 2p back into double figures. This will be an uphill struggle, but I would not bet against it.
Also on my radar screen is Networkers International (ticker: NWKI). The share price for this company is also on a nice recovery trend that may have some way to go.
Networkers is a very different business from Highams. It has 15 offices around the world and specialises in finding staff for the telecoms industry.
Developers of new telecom projects in emerging countries typically turn to experience from overseas. To cater for these, Networkers has a long list of experts whom it can place in permanent or more likely temporary assignments.
Following a merger with MSB, Networkers went into the recession with a bit too much debt for the City’s liking, but it is now paying some of that off. Crucially, it is also seeing an upturn in business.
Both Highams and Networkers could multiply investors’ money in a way that only penny shares can. If you prefer to believe the more optimistic of economic forecasts, this is the precisely the type of company you should be backing.
Good investing,
Tom Bulford
For The Penny Sleuth
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