Outsourced staffing business Staffline has warned profits for 2008 will be marginally below that of last year, prompting downgrades from analysts.

The supplier of ‘blue collar’ temporary and contract staff to industry, whose core division ‘OnSite’ provides a fully outsourced service for clients on their own premises, said recent subdued demand from certain clients, combined with a first half shortfall following three client site closures and Ethel Austin entering receivership, were behind its earnings alert.

While the news suggests economic slowdown is beginning to impact Staffline, its interim results to June were reasonably robust, with sales edging up by 5% to £54.9m and pre-tax profits flat at £1.4m.

During the half, the group put in a very strong cash performance, enabling a £2.6m year-on-year reduction in net debt to £5.8m, allowing management to increase the interim dividend by 8% to 1.4p.

Furthermore, there was good organic growth in the number of ‘OnSites’ to 104 locations, while the order book apparently stands at a record level for this part of the year. Management, led by managing director Andy Hogarth, predicts a more pronounced second half weighting this year, due to Staffline’s increasing exposure to the logistics and e-tailing sectors, as well as a number of new OnSites shortly set to come on stream.

Hogarth even sees opportunity amid worsening economic conditions, arguing that the margin pressure being experienced by its target clientele ‘is acting as a catalyst for high levels of interest in the efficiencies and cost savings we are able to offer’.

Nevertheless, forecasts for December 2008 were downgraded – pre-tax profits from £4.7m to £4.3m and earnings from 15.4p to 14.2p – estimates on which Staffline trades on a forward multiple of only 6.3. In our view, shares in this cash generative business with good exposure to the defensive food sector look oversold and are well worth hanging onto.

Staffline Recruitment	AIM	£8.39m	39.50p	0.00p
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