HRnetGroup Ltd (SGX: CHZ) is a talent acquisition and flexible staffing firm with operations in 13 growth cities, including Singapore, Bangkok, Hong Kong and Taipei, to name a few. The group’s main operating segments are professional recruitment and flexible staffing. Its clients come from over 30 diversified sectors ranging from retail and consumer to insurance and logistics.
Despite the group reporting stronger numbers and clear catalysts, its share price has taken a tumble, falling 14% from S$0.79 to S$0.68, underperforming the Straits Times Index which is up 10% year-to-date. With key growth strategies in place and also a strong regional presence, perhaps it is time for investors to urgently look into this undervalued gem.
Largest Asia-based recruitment agency
In its initial public offering (IPO) prospectus, HRnetgroup stated that it is the largest recruitment agency in terms of the number of licensed consultants, according to a study by Frost and Sullivan in 2016. The group’s key brands include HRnetOne, Recruit Express, PeopleSearch and Search Asia, and cover a wide spectrum of roles in diverse industries. These brands attest to the wide scope of coverage which HRnetGroup undertakes to capture all segments of the recruitment pie.
Consistent and healthy free cash flow generation
The above table shows HRnetGroup’s free cash flow generation history over the last five years. It’s clear that the group generates consistently high operating cash flow and has very low capital expenditure, resulting in the generation of copious amounts of free cash flow. This track record of consistency allows HRnetGroup to embark on its acquisition strategy using internally-generated cash flow, rather than having to rely on external funding (i.e. loans and borrowings). It also allows the group to maintain its dividend payments.
Growth catalysts in place
The growth catalysts are in place for HRnetGroup to do well over time, and I had written about the group’s acquisitions previously as a way for it to grow and expand its presence in Asia. As the group continues to open new offices around Asia and ramp up operations, the earnings and cash flows should flow through over time.
Valuations are attractive
HRnetGroup is trading at 14x historical earnings and also pays a 4.1% dividend yield (2.8 Singapore cents per share for FY 2018). More interestingly, it has a 7% free cash flow yield (computed as the free cash flow per share divided by the share price), which implies that it has room for higher dividends as well as cash for even more acquisitions and collaborations in the future. Investors should take time to delve deeper into this undervalued gem to hold for the long-term.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of HRNetGroup Ltd. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.