Investment Column: Staffline is one for investors to recruit

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Staffline

Our view: Hold

Share price: 82p (+4.5p)

Most recruitment consultants should have big, red, flashing warning lights above their headquarters – something along the lines of "avoid our shares at all costs". Staffline, though, is different.

This financial year has already seen the company issuing that rarest of announcements: a reverse profits warning that said earnings would be rather better than analysts expected. Yesterday's trading statement reiterated the good news and was upbeat in tone, despite reporting a "challenging" environment. The shares have proved to be stellar performers as well, doubling their value in the past year.

So what is Staffline's secret? The company is partly helped by its niche. It primarily services Britain's food industry, supplying blue-collar staff and handling human resources issues. It is not the most glamorous of businesses, but it does provide a stable stream of work which has been insulated from the worst of the recession. As the company's chairman and chief executive, Andy Hogarth, says, if Britain stops eating there will be a lot more to worry about than Staffline.

The company has also kept a tight rein on costs during the downturn (headcount has been slashed by 20 per cent) and there is scope for more as it integrates recent acquisitions and adds further bolt-on deals.

Another plus is that Staffline has been winning business recently, hence the earnings upgrade, and is detecting signs of life among its major clients. All this is good news and should keep things going nicely through the coming year. Even after recent rises, the shares are hardly expensive at just seven times' forecast full-year earnings. And while the prospective yield of 3.8 per cent is hardly stunning, the company does have a commendable policy of distributing its excess cash, so that could improve. But having had such a good run, the shares may suffer some profit-taking. So we say hold for now but look to buy on any subsequent signs of weakness.



Sportech

Our view: Buy

Share price: 48.5p (+0.5p)

Shares in the football pools operator Sportech have been falling faster than the league position of Liverpool (where it is based) in the past year. The gambling business has not been quite as contra-cyclical as some had hoped, and Sportech has struggled to integrate new distribution channels while new products have not gone as well as might have been hoped.

Together with a heavy burden of debt and a possible covenant breach, things have been looking about as attractive as the Liverpool team under Rafa Benitez. But there are reasons to hope Sportech might enjoy a better new year than the Reds. There will be writedowns to come (which are known about) but they should reduce the company's tax rate and help to mitigate the impact of softer-than-expected trading.

New banking facilities were agreed yesterday and, while not cheap, they mean the business can be refinanced and provide headroom that was not there before. They will also allow Sportech to pursue an unnamed "major" acquisition in the gambling arena, which is a key part of the turnaround plan and could add a new revenue stream and provide a platform for more deals.

On just over four times' full-year earnings, the shares are extremely cheap, largely because investors are not currently buying into Sportech's story (there is no dividend).

But with the World Cup in South Africa this summer and the company more financially stable, we think there are grounds for optimism, so take a gamble on the shares and buy.

Lifeline Scientific

Our view: Hold

Share price: 110p (+10p)

Shares in Lifeline Scientific, the Aim-listed company which ferries organs around and keeps them fresh before transplant operations, had a bumper end to 2009. Investors saw their stock jumping from as low as 38p to highs of 120p as the market rediscovered some of its appetite for high-risk stocks.

While those that bought halfway through last year have had nothing but joy, longer-term shareholders will note that the stock still trades well below the listing price of 152.5p two years ago.

Nonetheless, the future is bright for the Illinois-based company, which said yesterday that trading was strong in the second half of last year and it expected to turn a profit this year after losses over the past 12 months.

Investors taking a punt on the sector might fancy a flutter on Lifeline. We are impressed but also a little concerned that the stock already appears to trade at a premium to the sector. So hold on for the time being.

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