Our opinion on the current state of ADCORP(ADR)Adcorp (ADR) is an employment services company with subsidiaries in South Africa and Australia. The company has focused on improving its operations through (1) defining and refining its core business, (2) reducing costs, (3) strengthening its brand, and (4) transforming its internal culture. These efforts are aimed at positioning the company for growth, despite the challenging economic environment in South Africa and Australia.
In its results for the year ending 29th February 2024, Adcorp reported a 7.7% increase in revenue from continuing operations and a headline earnings per share (HEPS) of 83.8c, up from 61.1c in the prior year. The company highlighted the growing demand for its services in South Africa, driven by persistent load shedding and infrastructure issues, which prompted companies to seek more flexible staffing solutions. In Australia, ongoing blue-collar labor shortages increased demand for Adcorp’s contingent staffing services.
However, in a trading statement for the six months ending 31st August 2024, Adcorp estimated that HEPS would decrease by between 9.7% and 19.7%, primarily due to one-off restructuring costs of R25.6 million incurred during the period. The company emphasized that this decrease in earnings should be viewed in the context of these non-recurring costs.
Technically, the share has been drifting sideways and downward for the past 40 months, although it saw a spike in late May 2023 due to the prospect of a special dividend. The company has faced headwinds from South Africa’s high unemployment rate and the effects of COVID-19, which have further strained the economy and business activity.
Despite these challenges, the new management team appears to be making progress in stabilizing the company and positioning it for growth. With a price-to-earnings (P:E) ratio of 5.85 and a dividend yield (DY) of 6.58%, Adcorp's stock is relatively cheap, and there is potential for growth as the management continues to execute its turnaround strategy.
Given the company's restructuring efforts and strong demand for its services in both South Africa and Australia, Adcorp may offer value to investors, although the economic conditions in its key markets present ongoing risks.
