SKE - Skilled Group

[Smurf1976]

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.

 

[DocK]

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.

 

[Ves]

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.

 

[DocK]

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

 

[Ves]

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.

 

[craft]

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

 

[Ves]

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.

 

[VSntchr]

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.

 

[craft]

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.

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.

 

[Ves]

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.

 

[craft]

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.

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

 

[Ves]

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.

 

[Ves]

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.

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?

 

[VSntchr]

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

 

[VSntchr]

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.

 

[skc]

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.

 

[Wysiwyg]

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.

 

[Wysiwyg]

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

 

[piggybank]

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?

​

 

[skc]

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.