9/11/2016

Hudson Global (HSON): An Opportunity Near 5 Year Low





Hudson Global (HSON)provides permanent recruitment, contract consulting, recruitment outsourcing, interim management, and professional contact staffing services. Offices are in 20 countries throughout Europe, Asia-Pacific and the Americas. Hudson Global founded in 2003 is based in New York City.


After reviewing 33 staffing companies I’m encouraged that HSON (Hudson Global) is positioned to outperform its industry peers over next 1 to 3-year period. Another potential mean reverting industry peer is Volt Information Sciences (VISI). One reason for ignoring VISI on this post is perceived operational risks. Volt still offers significant turnaround opportunity trading near its 52 week and 5 year price low.

Now back to HSON, the opportunity exists to buy cheap shares based on favorable historical and industry relative valuation. Further, the most recent reported results show a turnaround emerging. 


The second quarter (June 30, 2016) revenue reported 113M is at the upper end of guidance. Strong dollar impacted revenue negatively by 5M, sale of two businesses 9M. Revenue is up 4% YOY on a retained and constant currency basis, 1% increase for gross profits.SGA is down 8% from last year in constant currency excluding the 2.5M arbitration settlement. Further, excluding arbitration costs financial results are above breakeven. Last, 582,000 of Hudson shares purchased during the second quarter at a cost of 1.4 million. The stock buyback program started in August 2015 through July 27 purchasing 1.70M shares at a cost of 4.2 million.

Hudson Global trades at EV/Sales of .10, lowest for the 33 companies reviewed. HSON  return is industry’s worst over 5 years at -16.90% annualized, 2nd worst over 3 years at -16.60% , and -35.53% for the past 52 weeks.  P/B of 1.20 is the industry 4ths lowest. The current stock price is ~ 3% off 52 low and 44% down from 52-week high. 


The low valuations have attracted value institutions, HEARTLAND at 11% of shares outstanding, LONE STAR VALUE 8%, POLAR ASSET MANAGEMENT 5%, and others.  Further positive attributes for a future higher stock price is reduction of shares in the float (see table below).



































Note reduction in Float















3 comments:

Stepherd said...

Really nice thing. And actually this will be included with whatever they have to involve in particular actions and all. Nice and also i am expecting much more posts from you.
Staffing Companies in Bangalore

Stepherd said...

I do believe all of the concepts you’ve introduced in your post. They’re very convincing and will definitely work. Nonetheless, the posts are too short for novices. May you please extend them a bit from subsequent time? Thank you for the post.
Recruitment franchise in chennai

Alan said...

Hi,

Thank you for sharing this idea, appreciate it was some time ago now.

You may be interested to know that this company has been written up on VIC (https://valueinvestorsclub.com/idea/HUDSON_GLOBAL_INC/140218#description), unless this was by yourself!

I think the idea is quite compelling, however I find it a little strange how much the writer focusses on the EV/Sales ratio given the high amount of "pass through" income relating to contractors. I notice you mention the low EV/Sales ratio as well, and wondered if you had any thoughts about the impact of pass through income, and how to adjust for this / compare to other companies in the industry?

For example in 2016 I think around $271k of revenue related to contracting, generating a gross profit of just $34k. One could wonder if the amount of pass through i.e. above their fee / gross profit, distorts the revenue figure in some ways. In comparison when they book permanent recruitment income, I think the fee goes in with a 100% gross profit margin i.e. no direct costs associated and no pass through income relating to the recruits pay. Given these quite different treatments, it seems comparing to other recruitments firms could be misleading, depending on their mix of income and accounting treatment.

Would also be interested in any updated thoughts you had on the company, particularly the Q1 results which appear encouraging.

Many thanks
Alan