# SKE - Skilled Group



## Kremmen (28 July 2009)

Having spent the last 3 months drifting downwards to about $1.20, Skilled has risen strongly for the last 2 weeks, closing at $1.61 today.


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## Muschu (13 March 2011)

I hold SKE and have been offered additional shares under their "non-renounceable entitlement offer".
This happens to be a stock where I am presently in profit. The current SP is $1.95 and the offer, closing 18 March, is at $1.68.
I'm tempted but the present volatility is an issue of course. 
Any general thoughts on this? 
Regards
Rick


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## Country Lad (27 March 2013)

Up 83% since the last post so I hope you did take up that entitlement, Rick.

With all the doom & gloom about the impending reversal in mining services stocks and half of SKE's business being in the mining and oil & gas sectors, SKE is concentrating on growing the non-mining part of the business and management is confident of further growth.

The price seems to be travelling well with maybe an impending breakout in the offering by the looks of the charts.  However, I noticed that after the reasonable rise during the day, the market sentiment seems to have dissipated, so we can only wait to see whether it improves again tomorrow.

Cheers
Country Lad


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## chops_a_must (27 March 2013)

Could be right. But it looks a little messy for mine.


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## Boggo (15 April 2013)

SKE, its been a pleasure doing business over the last four months but today you left me no choice, we may meet again though


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## Boggo (6 May 2013)

A follow up to my post above and an example of why I use stops, especially when a stock starts to hesitate.

(click to expand)


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## Ves (6 May 2013)

I wonder if the heavy volume is just CBA selling...  I admit I was semi-interested in this the last time it was in the $2.30s.   I missed a spectacular run, and an even more spectacular fall by the looks of it.


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## Paccioli (14 May 2013)

Perhaps the market is considering that SKE also supplies heavily to car manufacturing as well as to mining, I think. 

It seems to me to be a well-run company but a point of buying in contractors, from the pov of the purchasing company, is easy divestment so I see SKE as basically a playground for traders rather than somewhere I would go.


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## Ves (13 June 2013)

SKC or someone else... did you notice any announcements in this sector that would explain the heavy volume and price decline in SKE over the past few days?   It is starting to look pretty attractive now.    Fantastic cashflow generation, low capex and volume based (meaning asset utilisation is not as big a deal, and also provides some insulation against commodities prices) and very high ROIC.  Also it does not rely on high margins for profitability, like a lot of companies in related sectors have over the boom part of the cycle. The balance sheet is pretty clean too.

There is either an announcement or a speeding ticket coming... or someone wants out really badly.  Fairly certain there has been no earnings downgrades from SKE management to date.


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## VSntchr (13 June 2013)

Job numbers today showed a drop in participation rate, drop in full time jobs (over compensated for part time jobs - hence the increase)...
This is the only news I've heard that is relevant to the company...


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## skc (13 June 2013)

Ves said:


> SKC or someone else... did you notice any announcements in this sector that would explain the heavy volume and price decline in SKE over the past few days?   It is starting to look pretty attractive now.    Fantastic cashflow generation, low capex and volume based (meaning asset utilisation is not as big a deal, and also provides some insulation against commodities prices) and very high ROIC.  Also it does not rely on high margins for profitability, like a lot of companies in related sectors have over the boom part of the cycle. The balance sheet is pretty clean too.
> 
> There is either an announcement or a speeding ticket coming... or someone wants out really badly.  Fairly certain there has been no earnings downgrades from SKE management to date.




I don't know this stock well, but if I was to guess, then either they were trading at PE that's too high (like recent weakness in SEK, CRZ, MTU, TPM etc), earning growth assumptions being too generous, or that placement in the engineering / resource sector is a meaningful part of their business. Or some combination of all three...

I will let you find out the real answer and share with us here.


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## Ves (13 June 2013)

skc said:


> I don't know this stock well, but if I was to guess, then either they were trading at PE that's too high (like recent weakness in SEK, CRZ, MTU, TPM etc), earning growth assumptions being too generous, or that placement in the engineering / resource sector is a meaningful part of their business. Or some combination of all three...
> 
> I will let you find out the real answer and share with us here.



Trailing P/E is about 9.5 after today.    Before the drop it was between 10-11.  Forward P/E,  which is based on analysts estimates, and should be taken with a grain of salt is for 25c EPS in 2013,   27.7c EPS in 2014.  That would put it on a P/E of 8.5 for 2013 and 7.5 for 2014.   Again to be taken with a grain of salt.

I don't think it was the jobs data (although that no doubt wouldn't have helped with sentiment with these kinds of stocks).   It was already about 7% down before that was released and has been consistently down most of the last week  (and indeed it was $3.75 at some point this year before all of the engineering / mining services companies got slammed).

I think this company's earnings has held up pretty well over the last few years. Indeed, I believe their model has more resilience than the firms that have all the big cranes and equipment pieces on their balance sheets.  There are more variable costs to cut, if need be.  It's a pretty flexible business model, as seen by the steady margins over the last 10 years; they can adapt pretty quickly if the **** hits the fan.  They made some acquisitions before and during the GFC and messed their balance sheet a bit, had to raise some capital... and have since paid the rest off whilst raising the dividend back to it's previous level.  That cash is still coming in - and the payout ratio expressed in cash earnings is much lower than the dividends / NPAT, so it looks fairly maintainable.

EBIT in 2012 was about $84 million.    Say they lost 30% of that to the reversing cycle.  That's about $60 million EBIT.  Which coincidently is close to the five year average. I haven't gone back much further yet... but I will have that data when I have finished plugging it into my financial model. Dividend still looks maintainable at those levels after maintenance capex IMO.   EV at close today is $490 Equity + $70 debt  = $560 million.  That is an EBIT multiple of 9.33 times.  Not exactly a massive stretch, especially for a company that can earn rates of return in excess of 50% on capital employed.

I'm hopeless at predicting price action over the short-term, and there is no doubt going to be lots of sellers lining up assuming that earnings will be downgraded as we approach 30 June 2013, but this is starting to look attractively priced at these levels.


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## skc (13 June 2013)

Ves said:


> I don't think it was the jobs data (although that no doubt wouldn't have helped with sentiment with these kinds of stocks).   It was already about 7% down before that was released and has been consistently down most of the last week  (and indeed it was $3.75 at some point this year before all of the engineering / mining services companies got slammed).




Actually Credit Swiss downgraded them today so that would explain some of the fall. At $3.75 and EPS of 25c, forward PE of 15... so of course they should be smashed down from there given the market and the industry outlook. 



Ves said:


> I think this company's earnings has held up pretty well over the last few years. Indeed, I believe their model has more resilience than the firms that have all the big cranes and equipment pieces on their balance sheets.  There are more variable costs to cut, if need be.  It's a pretty flexible business model, as seen by the steady margins over the last 10 years; they can adapt pretty quickly if the **** hits the fan.




Is it truely a flexible business model? How does the business work? Do they have heaps of labour on their books? How long and how much does it take to fire them if there's no work for them? 

We had a boom in the last few years - so of course earnings held up well. But things have changed completely. 
The mantra to every resource companies these days is "Cost out". Contract miners are sent home so the company can do it in-house. Expensive contractors are no longer required when the work dies down. Ugly tin-clad houses in resource towns are up for sale with no inspections for 3 months (AFR article today). 

Everything about SKE spells cyclical. I think it is risky to think a cyclical business is resilient in the face of overwhelming industy trends. 



Ves said:


> EBIT in 2012 was about $84 million.    Say they lost 30% of that to the reversing cycle.  That's about $60 million EBIT.  Which coincidently is close to the five year average. I haven't gone back much further yet... but I will have that data when I have finished plugging it into my financial model. Dividend still looks maintainable at those levels after maintenance capex IMO.   EV at close today is $490 Equity + $70 debt  = $560 million.  That is an EBIT multiple of 9.33 times.  Not exactly a massive stretch, especially for a company that can earn rates of return in excess of 50% on capital employed.
> 
> I'm hopeless at predicting price action over the short-term, and there is no doubt going to be lots of sellers lining up assuming that earnings will be downgraded as we approach 30 June 2013, but this is starting to look attractively priced at these levels.




I think you should look harder about valuation rather than worrying about the price action. Taking 30% off EBIT may sound like a lot, but I think you need to work on the actual top and bottom line. As I said, I don't know how quickly they can cut costs (e.g. do they fire their own staff and cop one-off redundancies?) in the face of falling revenue. May be the EBIT will evaporate faster than you anticipate? I don't have the answer, but I'd assess the downside scenario a bit more. And after you work out a lower EBIT, don't forget a multiple contraction as well. NWH is trading at 3-4 times NPAT so 9x EBIT with falling E is probably a bit rich for the market.

Don't mean to sound all negative.... just being a devil's advocate. It may be a bargain for all I know.


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## Ves (13 June 2013)

skc said:


> Don't mean to sound all negative.... just being a devil's advocate. It may be a bargain for all I know.



That's all good.   I'm still digging into it and once I have mapped out the financials for the whole cycle I can start answering some of your questions in more detail.  You've provided a sound reasoning for your doubts, and I agree you would have to be comfortable that the company can handle the worst case scenarios before you can start valuing it in more detail.  Thank you again for taking the time to reply.


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## skc (14 June 2013)

Ves said:


> That's all good.   I'm still digging into it and once I have mapped out the financials for the whole cycle I can start answering some of your questions in more detail.  You've provided a sound reasoning for your doubts, and I agree you would have to be comfortable that the company can handle the worst case scenarios before you can start valuing it in more detail.  Thank you again for taking the time to reply.




Actually bought some SKE on the open today. A we know nothing speeding ticket combined with a strong overnight lead and an upgrade by Wilsons... enough ingredients for a quick long trade.


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## Ves (14 June 2013)

skc said:


> Actually bought some SKE on the open today. A we know nothing speeding ticket combined with a strong overnight lead and an upgrade by Wilsons... enough ingredients for a quick long trade.



Bought some too by the way - but not at open as my order did not get filled (which reminds me I'm a long-term investor, and a small fish, and should buy at market - it usually costs me few extra cents per share when I start counting the pennies I may save...).   A minor position (which I often do for good prospects) whilst I finish the research. I don't think my conclusions will change.  Reading back this morning I tried to answer some of your questions in my first two posts, however, probably did not communicate them very clearly.  Might add some extra answers to your posts over the weekend.


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## McLovin (14 June 2013)

skc said:


> Is it truely a flexible business model? How does the business work? Do they have heaps of labour on their books? How long and how much does it take to fire them if there's no work for them?




I thought these guys were just a labour hire outfit? Sort of like a temp agency, you only go on their books once they contract you. They are pretty exposed to mining and oil and gas. Of there three divisions (they sold their call centre division) the least resource exposed has been flat/down over the last few years while the Engineering and Technical services segments have put in solid growth.

Maybe Ves has some insight into that breakdown?


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## skc (14 June 2013)

Ves said:


> Bought some too by the way - but not at open as my order did not get filled (which reminds me I'm a long-term investor, and a small fish, and should buy at market - it usually costs me few extra cents per share when I start counting the pennies I may save...).   A minor position (which I often do for good prospects) whilst I finish the research. I don't think my conclusions will change.  Reading back this morning I tried to answer some of your questions in my first two posts, however, probably did not communicate them very clearly.  Might add some extra answers to your posts over the weekend.




You do what you need to do to satisfy yourself... happy either way if you wish to share your finding or keep it to yourself. Although I always find that articulating the answer in writing helps you structure your thinking and potentially reach a more logical conslusion.



McLovin said:


> I thought these guys were just a labour hire outfit? Sort of like a temp agency, you only go on their books once they contract you. They are pretty exposed to mining and oil and gas. Of there three divisions (they sold their call centre division) the least resource exposed has been flat/down over the last few years while the Engineering and Technical services segments have put in solid growth.




You are probably right. I'd imagine they would have some fraction of core staff on the books. Mining labour was so tight that calling around last minute might not get them the right staff on short notice.


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## Ves (16 June 2013)

Just some more thoughts about earnings resilience in a down-turn.

As McLovin said SKE is generally thought of as a labour hire outfit providing labour solutions to a wide range of industries. They are the market leader in the segment with our 11% market share. Their brand-name comes with a good reputation for safety and flexible solutions.  PRG is also in a similar space if you know them. 

From the 2013 half-year presentation revenue is split as follows:

Mining 28%
Oil & Gas 26%

The rest is spread across infrastructure, telecommunicaitons, government, auto & defence, transport, health and a few other industries.

Skilled Group generally focusses on longer-term infrastructure contracts (with allows it to maintain relationships with both its workforce and its clients).  In the mining sector they generally focus on operational contracts  (ie.  the main driver of their business is commodity volume which is still ramping up in Australia), as long as the mines are still digging up materials then they need to run.  50% of clients have 2-5 year contracts, 18% have 5+ years.

This is a low margin business which relies on volume of employees rather than premium pricing.  As I remarked previously this is a low-fixed cost business with high operational leverage (asset turnover is consistently over 5 times) and very low capital intensity (ROIC averaging 50%+).  It's very scalable and can be tuned to the economic conditions fairly quickly.  Their biggest expense is employee / labour costs.  These generally come in very close to 87% and have gone no higher than 88.5% over the last few years.  As this company has had a capital structure transformation over the past few years it is best to look at its operating margins rather than its EBIT margins (interest expenses and indeed tax rate has fluctuated wildly and distorts the picture).   SKE's operating margin 5% over the past 10 years  (give or take a few fractions of a percentage point).   This mirrors from what we should expect from a business with high variable cost control.

They have been in the midst of a capital and cost base structure transformation since the strategy reviews of 2010.  They're trimming the fat after years of acquisition binges by the previous management.  Debt has reduced significantly and internal costings have decreased and still are.   Without any top-line growth since 2008 the bottom line growth has increased significantly.  The company has and continues to control most of their profitability growth through astute cost management and debt reduction despite the prevailing softness in the labour markets to which they are exposed.

If I am correct about SKE's competitive position and their cost controls  I would forsee that in a major downturn some of their lessor competitors may find the going tough and there will be a large potential for the bigger fish like SKE (who have strong balance sheets to weather the downturn) to grow organically by gaining market share.  There is nothing stronger than a competitive advantage in weak market conditions.



			
				skc said:
			
		

> You do what you need to do to satisfy yourself... happy either way if you wish to share your finding or keep it to yourself. Although I always find that articulating the answer in writing helps you structure your thinking and potentially reach a more logical conslusion.



Yep,  completely agree with the benefits of articulating your thoughts in writing - especially to others.


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## VSntchr (16 June 2013)

Great post 

Will be doing some research for myself after having read this.

Interesting Fact: Skilled sponsors "Skilled Stadium" home of the Gold Coast Titans


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## Smurf1976 (16 June 2013)

This company is so entrenched in certain markets that its' name is used generically to refer to the entire concept of labour hire. 

That is, the words "Skilled Engineering" are taken to refer to any temporary labour hire, whether or not it actually involves SKE as the supplier. That's a bit like using "Biro" to mean any ball point pen or "iPhone" to mean any smart phone. 

It is entrenched and that itself is effective marketing - if it is decided at a project meeting to "use Skilled Engineering" (meaning to employ temporary labour from whatever source) then it's quite likely that whoever is given the task of making this happen will actually go to SKE since that's the name they've heard of. That alone is a competitive advantage.

One downside though, is that SKE's staff certainly do get poached by their customers which I'd expect may be a hassle for the company. It's pretty straightforward to do it, just employ labour through SKE to temporarily fill a vacancy. Then, if the person you get is any good, offer them a permanent job and 9 times out of 10 they'll take it. It's sort of against the rules, but in practice it happens quite a lot in certain industries.


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## DocK (25 October 2013)

This one has been in a nice uptrend since a big dip in mid-June, pays an OK div and has a decent record.  I note that they've won a large contract delivering LNG to Darwin which is due to complete mid 2015. http://finance.ninemsn.com.au/newsbusiness/motley/8729007/skilled-group-snags-200-million-lng-contract
Could anyone who follows this company tell me what caused the fall in share price in June, and I'd also be interested in a fundamental analysis of this company if anyone would like to give one.  

There are a few property trust type companies breaking out recently, and I've only enough spare capital to consider either SKE, CQR, GMG or maybe even EHL for a mining-related play.


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## Ves (25 October 2013)

DocK said:


> Could anyone who follows this company tell me what caused the fall in share price in June, and I'd also be interested in a fundamental analysis of this company if anyone would like to give one.



DocK,  I remember writing some fairly extensive fundamental views on this company back in June.  Do these help at all?  Not much has changed since then in my opinion, it was a quality company then as it is now. I haven't bought any since the big dip,  but still happily hold and have no intention of selling.


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## DocK (25 October 2013)

Ves said:


> DocK,  I remember writing some fairly extensive fundamental views on this company back in June.  Do these help at all?  Not much has changed since then in my opinion, it was a quality company then as it is now. I haven't bought any since the big dip,  but still happily hold and have no intention of selling.




Thanks Ves - I clearly need new glasses as I thought I was on page 1 of the thread .  I've now gone back and read your comments, and the others and thank you for sharing your thoughts.  I'm sure you're a happy holder


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## Ves (12 November 2013)

Acqusition of the core business of maintenance and asset management business of THO (Thomas and Coffey) was announced to the market today. 

Whilst it doesn't look very expensive at under 5x EBITDA,   THO itself has had a really rough couple of years and after this sale will go into run-off mode. In recent years there have been little earnings to write about at all.

It will be interesting to see if the increased scale provided by Skilled Group and the access to a much greater financing capability whether this acqusition is viable.   

With Skilled's atrocious record of acquisitions pre-GFC that completely destroyed shareholder wealth under a different management team I will be watching their moves here very closely.


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## craft (30 May 2014)

Noticed this the other day in the PRG result presentation



> The staffing industry is facing major digital disruption to its traditional methods, affecting costs and margins. Large employers are investing in online technology and using social media to recruit and maintain their own database of potential full-time and part-time employees. The placement fee revenue of many recruitment firms, although not a material component of Programmed’s income, is at historic lows and is unlikely to fully recover.




Digital Disruptions everywhere! 

Is this significant?

What is the potential impact on SKE?

Thoughts from those familiar with SKE would be appreciated.

Thanks


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## Ves (30 May 2014)

Hi craft

My understanding is that Skilled Group have been very proactive in using technology to their advantage,  and continue to spend a fair bit of money upgrading their back-end systems and data bases.

This is their purpose or their core operation,  for every company that does it themselves,  there would be many others who defer capability to someone who can do it cost-effectively and with expertise.

They now have enormous scale  (last I checked it was roughly 50,000 labour employees?) which allows them to maintain extremely low margins and a low relatively cost base. 

They already have a very large captive audience and have a lot of expertise in the field which they can use as a value add.   In other words,   can potential employers recreate this range of reach in a cost effective manner?  And additionally,  if they cannot,  will the solution that they come up with be good enough to justify any effort / cost put into it in the long-term?

There is a fairly big trend of out-sourcing in companies through-out the world to allow them to focus on their core operations  (this in effect goes against that grain).  

The most important thing under-pinning outsourcing of internal functions is creating the same capability at a lesser or equal cost.

Any employer setting up their own online system is really competing against this - can they set something up and attract enough potential employees / contractors on their own?  They may attract employees quickly and cheaply,  and save costs in the short run,  but if they are not the right people,  costs will add up in the long-run too  (same with Skilled Group,  if they cannot offer long-term savings and stability to their clients,  then they get dumped).   

Skilled Group has a well entrenched reputation for excellence in the labour solutions field,   and their size and scale,  and willingness to adapt to technology puts them in good stead to use it to their advantage.


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## VSntchr (30 May 2014)

Ves, 
That's a really good response and shows a level head at times where the media speculation could lead holders into a fear state.

Everything you have written above seems logical and reasoned to me.

I don't hold SKE but I do keep a loose watch on it. Well done.


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## craft (30 May 2014)

Ves said:


> Hi craft
> 
> My understanding is that Skilled Group have been very proactive in using technology to their advantage,  and continue to spend a fair bit of money upgrading their back-end systems and data bases.
> 
> ...




Thanks Ves

What do you think of the digital dislocation start-ups like OneShift that PRG has invested in?  What about linkedin, Job matching seems a logical next step for them and I believe they have been buying job matching startups.

The discussion really feels like CAB again - Is the major incumbent best placed to implement the new technology or will the start-ups steal a lead or at least impact industry margins in their attempts? PRG's statement indicates a margin impact already - but maybe that's an excuse or a justification for investing in OneShift.

How much of the temporary job placement market can be reduced to a digital exchange? Can a middle man justify his fee - I think this is key for thinking about SKE.

Job advertisements certainly work better digitally then traditionally, but that's more advertising then the range of benefits SKE offers.

pondering.


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## Ves (30 May 2014)

Skilled Group's business model is not _*just*_ job matching capability.  This is a part of the total solution that they offer, but it is not the whole of it.   That is why PRG's statement is more along the lines of "not a material component of Programmed's earnings."

They also get involved with project management requirements (they organise the entirety of the labour to the client's specifications),  safety management, ad hoc tasks like shut downs, unscheduled maintenance where things need to be turned around really quickly.   They have to be flexible and adaptable.

According to their website this requires " broad expertise in industrial relations, information and reporting systems and employee management."

Yes - LinkedIn and other willing entrants can try to replicate some of this function with a computer,  but I think there's a fairly substantial part that needs more than just a computer to replicate.   You need ongoing relationships, reputation and most importantly expertise.  

_I think_ Skilled Group is closer to  Data #3 in terms of impact of change of technology / disruption,  than something like Cabcharge.  It may change the way things are done,  but it will not change the expertise that you require to enter the industry or the core value of the offering IMO.  The whole idea is improving the cost efficiency and smooth running of their client's projects.


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## craft (30 May 2014)

Ves said:


> Skilled Group's business model is not _*just*_ job matching capability.  This is a part of the total solution that they offer, but it is not the whole of it.   That is why PRG's statement is more along the lines of "not a material component of Programmed's earnings."
> 
> They also get involved with project management requirements (they organise the entirety of the labour to the client's specifications),  safety management, ad hoc tasks like shut downs, unscheduled maintenance where things need to be turned around really quickly.   They have to be flexible and adaptable.
> 
> ...




Thanks Ves and just in case I'm frustrating you - I know they are not just job matchers and I tend to agree with your last paragraph - but I do like to try and stress test my opinions by looking from different points of views.

Cheers and thanks again for your responses


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## Ves (30 May 2014)

craft said:


> Thanks Ves and just in case I'm frustrating you



Hi craft

Not at all,   you may not realise how much it actually benefits me trying to formulate my thoughts into a way that other people can not only understand,  but hopefully even benefit from themselves.

I am actually curious now myself,   after looking at the working capital requirements in this business, and the redundancy payments from the restructuring over the years,  whether a fairly large chuck of the Skilled Group employment / contractor register is actually being financed by Skilled.  This would mean that the company (client) is responsible for paying for the project capability that Skilled provides,  but Skilled passes on a proportion of this to the actually individual workers in those cases.

They take a massive interest in safety and always report time lost to incidents in their presentations.

I know that they do a lot of training and apprenticeship programs,   and provide a fair bit of person to person contact with workers who make it onto their books.


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## Ves (30 May 2014)

VSntchr said:


> Ves,
> That's a really good response and shows a level head at times where the media speculation could lead holders into a fear state.
> 
> Everything you have written above seems logical and reasoned to me.
> ...



Thanks VS -  it's always good to hear from you.   Can you hint how far the current price is away from getting you really interested?


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## VSntchr (30 May 2014)

I haven't put in the work to be able to answer that question yet. When I do, I'll post some thoughts here..


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## VSntchr (8 December 2014)

This has become the latest whipping boy as a result of commodity price sell down. 
It has halved in price in ~2 months without any substantially negative company specific news.

Down 20% today..getting interesting for a deeper look.


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## skc (8 December 2014)

VSntchr said:


> This has become the latest whipping boy as a result of commodity price sell down.
> It has halved in price in ~2 months without any substantially negative company specific news.
> 
> Down 20% today..getting interesting for a deeper look.




Look carefully at the sustainability of their revenue... I think there's a lot of LNG-related work that will simply drop off a cliff in a year or two. But I haven't dig into the exact figures. 

There was a downgrade by UBS which slashed price target from $3 to $1.60. It's a bit of a joke from where I stand... it's like they have a forward projection X years in their analysis, so they do not take into account the revenue cliff in X+6 months. Then 6 months later, they said "hey, the revenue drop off is now in our forward projection period, so let's slash the target price".

I am surprised that there isn't a speeding ticket yet... an analyst downgrade is not a valid reason for the ASX to not ask the question.


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## Wysiwyg (8 December 2014)

skc said:


> I am surprised that there isn't a speeding ticket yet... an analyst downgrade is not a valid reason for the ASX to not ask the question.



Response to an ASX 'please explain' this afternoon drew the usual 'we know nothing'. 

That wasn't a technical dump on an old support break. It has bad news all over it.


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## Wysiwyg (8 December 2014)

Worst dividend performance in recent times was no payment years of 2001 and 2010.


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## piggybank (17 December 2014)

skc said:


> There was a downgrade by UBS which slashed price target from $3 to $1.60.




Well it's gone way past UBS target of $1.60 - have they come up with a new one yet SKC?

​


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## skc (17 December 2014)

piggybank said:


> Well it's gone way past UBS target of $1.60 - have they come up with a new one yet SKC?




Not that I've seen. The downgrade probably won't come until after the fact, as per usual.


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## craft (17 December 2014)

skc said:


> Not that I've seen. The downgrade probably won't come until after the fact, as per usual.




I have skin off on this one – A re-occurrence of my premature accumulation condition. 

Yep the near term looks challenging and they will face some redundancy/restructuring costs but it’s a good well run fairly diversified variable cost business. The price is implying way less then cost of capital returns over the long run.  I reckon they will do way better than that.

Obviously Energy exposure and rising unemployment is freaking the market out – how low will it go?

On the upside we have a Know nothing in response to the speeding ticket and a reconfirmation of the business update from the AGM which indicated typical cycle low margin squeezing business performance but nothing more. 

New CEO in place (wish my LTI grants were being priced at the moment),

Debt refinanced at lower rate and extended term. 

Come on Mr Market – make me say WTF again.

Actually I think there are a couple of good resource service companies that are good long term value at the moment – but who knows how low they can go.


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## Ves (18 December 2014)

They've done pretty well so far cutting into their cost base.   And the acquisitions have been pretty good....  they are steadily improving their capability to service areas of the economy that are not mining or O & G related.   However,  economy is still sluggish so it's a waiting game (read:  could be longer than most broker's forecast periods).

The main problem,  and craft,  did touch on this,  is the rest of the cost base and potential redundancy liabilities.   It could potentially wipe out earnings for a year,  perhaps more, going forward,  if they get caught with their pants down and need to lay-off a whole heap of workers quickly.

Debt looks high,  but a lot of it is funding the Ichthys project ramp-up,  and it'll begin to hit peak and wind down when the main cash comes through next year.  I don't see it as a major problem:  famous last words.

At the moment it's a case of:  the mining boom is over and there's no chance that this company will be able to diversify outside of it.    I disagree, so I look like an idiot for now.

I remember that they've had some pretty substantial telecommunications contracts in the past.   There's definitely some potential there at the moment....


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## skc (18 December 2014)

Ves said:


> At the moment it's a case of:  *the mining boom is over and there's no chance that this company will be able to diversify outside of it.    *I disagree, so I look like an idiot for now.




I don't know... why buy a company hoping that they can diversify in what they do? As an investor it's infinitely more appropriate to do the diversification yourself.

Agree it does look cheap for the short term and wouldn't surprise me for this to run back up towards $1.60 range in the near future.


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## notting (30 December 2014)

Well, I was going to start lampooning the response from SKE that the bid was opportunistic given the majority of it is pegged to the share price of PRG which had probably fallen just as far.

But, charts kind of agreeing that it is, a little. 

If they ever recover, otherwise it's, well, somewhat dangerous, unless you are happy with ya 25c as an SKE share holder, because Lord knows what PRG will be worth when the 30 year mining age is well and truly, well, dead.


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## Wysiwyg (3 January 2015)

skc said:


> Agree it does look cheap for the short term and wouldn't surprise me for this to run back up towards $1.60 range in the near future.



That was a hot bounce off $1.04 on the 17th Dec. to $1.695 yesterday. The 17th Dec. was the day Programmed Maintenance made a merger proposal to Skilled, so I just read.


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## Ves (3 January 2015)

skc said:


> I don't know... why buy a company hoping that they can diversify in what they do? As an investor it's infinitely more appropriate to do the diversification yourself.



What I meant was that I disagree that they need to at all.   They've got a track record outside of the mining boom.

But as I said,  I often look like an idiot.  So I could be one!


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## craft (4 January 2015)

Ves said:


> What I meant was that I disagree that they need to at all.   They've got a track record outside of the mining boom.
> 
> But as I said,  I often look like an idiot.  So I could be one!




As a general rule, the crowd doesn't differentiate very much. Mining/oil services - chuck it out. Its pretty hard not to no look like a fool whilst the crowd is stampeding - But that's where the opportunity lies.

I was pretty impressed with the opportunisms of PRG (the lesser company IMO) to launch the bid at the price they did. Obviously they have been talking for a while but it was a fairly unfriendly move - not likely to do much to resolve what was no doubt a sticking point over price to get the marriage done.


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## Ves (4 January 2015)

craft said:


> I was pretty impressed with the opportunisms of PRG (the lesser company IMO) to launch the bid at the price they did. Obviously they have been talking for a while but it was a fairly unfriendly move - not likely to do much to resolve what was no doubt a sticking point over price to get the marriage done.



They're a pretty good fit for each other in my opinion....  but the price seems way out of whack to me.  It's probably not the last we will hear about it in the next few years either.


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## notting (22 January 2015)

> The (net) financial synergies from a merger are in the order of the $20 million per year stated by Programmed and would take a number of years to achieve.
> Upside potential is limited by activities already undertaken by both SKILLED and Programmed
> Majority of cost saving opportunity would be the removal of duplicated corporate overheads –does not better position the business for future growth
> Some dis-synergies impact is also likely 
> ...




Well that was obvious.  Thank you.

Why would SKE have fast forwarded the new CEO a few weeks back if they were going to accept?
They would have just sat back in their arm chairs and let PRG do all the forward thinking.
I think I pointed this out in the PRG thread at the time.


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## notting (11 February 2015)

Gearing  up from 21.9% to 31.4%
Debt up from 132.9 to 221.6
Change of 279%

Cash flow down 60.1%

Dividend unchanged at 7.5c per share!!!!
That’s 17.7 million cash being tossed out.
Dividend value trap loving market loves it for about half an hour then warms to it as much as the dividend payout.  I guess many were not expecting anything.
Watch out for day EX!!


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## Ves (11 February 2015)

notting said:


> Gearing  up from 21.9% to 31.4%
> Debt up from 132.9 to 221.6
> Change of 279%
> 
> ...



My replies would be....

1.  EBITDA to cashflow conversion is always very low in 1H.  Not exactly a surprise.
2.  Debt levels increasing in 1H 2015 has been known for 18 months.  Some was from the acquisitions,   but a lot also had to do with the massive working capital ramp-up for Ichthys project. Definitely not unknown to the market, and debt will decrease (unless the company decides to buy some more businesses).


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## Wysiwyg (12 March 2015)

notting said:


> Watch out for day EX!!



Tomorrow is the last day to lay claim for that juicy dividend. Share price looks primed to test the low and beyond with ex div. on Monday continuing this down trend. At a guess a stab through $1 before May. Another company I would like to hold for the long term when business turns around.


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## System (21 October 2015)

On October 19th, 2015, Skilled Group Limited (SKE) was removed from the ASX's official list in accordance with Listing Rule 17.11, following implementation of the scheme of arrangement between the Company and its shareholders in connection with the acquisition of all of the Company's shares by Programmed Maintenance Services Limited (PRG).


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