Veteranpoolen AB (Ticker: VAPB B)
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VeteranPoolen AB
Staffing company for pensioners
Written: 23.11.2020 (available in pdf below if that’s easier to read).
By: Markus Enge
About Veteranpoolen (VAPB B)
Founded in 2007 in Sweden by Ingrid Erlandsson, she wanted to find assignments for her active dad that had just retired. She figured out that this could also be relevant for other pensioners. The firm grew rapidly helped by tax regulation that allowed Swedes to deduct a certain amount of home services from their taxes (ROT and RUT regulation).The Company was spun out of Homemaid AB in 2018. The Company focuses exclusively on staffing retirees in Sweden. Currently, they have about 8000 active retirees, mainly at lower percentage positions. They have 49 offices and the majority is run by franchisees. The main services provided are house help (30%), business services (30%), carpentry (20%), and garden work (20%).
The main customer group is private individuals wanting help in their house, about 30 to 50% (up to 50 000 per year) of the cost get refunded by the tax office so the net cost to consumers is about 220 SEK per hour. The incentive was introduced to fight illicit work.
Main risks
· Political risk regarding changes in condition for having pensioners working, earning thresholds, employment tax, etc.· Many of the employees are by definition in the risk group for COVID 19
· Might get bad publicity for taking a high cut on money earned by pensioners
· Future pensioners might go for more digital solutions, not an office-based staffing company
· Negative growth starting in Q4 2019 might be due to an underlying problem
The Numbers
The Company has lost the main part of the work for one of the largest customers during Q4 in 2019, in aggregate the 9M 2020 numbers have been reduced by about 10% year on year, but margins have been slightly improved. Adjusted for the reduction in one specific customer they returned to growth in Q3 2020. They have also seen the largest increase in applications of seniors’ interest in working for the company in 2020.
The Company is very conservatively financed with 0 interest-bearing debt and they canceled the 2020 dividend to have a buffer.
Management
Patrik Torkelson (Chair) and Mats Claesson (CEO) have both been in the Homemaid/Veteranpoolen system for 11 years and CEO in Veteranpoolen for about 8 years.The CEO earns about 2mSEK per year (about 50% is a performance bonus). He has been buying about 10 000 shares in 2020 and 2019. The highest price he paid was 25 SEK in May 2019. Mats and Patrik controls together above 40% of the votes, but around 15% of the shares.
Industry
Veteranpoolen was the first staffing company in Sweden to focus on seniors (average age 69 years old). Their largest competitor Veterankraft started a few years later almost copied the name, logo, and most of the concept. Both have grown quite fast, but Veteranpoolen is about 3x the size and the net profit margin is about 2,5x better.
In 2018 about 50% of the franchisees were profitable, this had increased to above 80% in 2019.
Why do franchises not start by themselves? Veteranpoolen supplies all the regulatory necessities to run their operations, administration of the special tax regulation for the seniors, IT systems, insurances, accounting, and all certifications needed for costumers.
The main hurdle to enter the market is getting the network and your name out, both to potential staff and customers.
Other
B Shares have 1/5 of the votes of the A shares, this is a typical Swedish listed company structure. There are no other differences between the shares.The share is quite illiquid with around 30.000 shares trading in a day.
Investment thesis
· Adjusted for excess cash it’s trading at about 10 P/E on current earnings which are quite a bit below comparable companies in Scandinavia. Even at low future growth, the company should be a fair investment. I would expect a dividend yield of about 7% in a post-COVID 19 environment without growth since they do not have any way to deploy a larger amount of cash.· Their potential supply of workforce will increase drastically over the next decade since people live longer, are healthier at retirement age and the baby boomers are getting into retirement.
· Retirees have been an untapped resource in the Nordics and a lot of companies push people at retirement age out of the company. The satisfaction studies done by Veteranpoolen says that more than 90% says the work increase their well-being
· There is potential in the other Nordic countries that do not have any larger companies in the niche. This would require some investment in adaptation to language and other pension rules
· I think the mark from Q4 2019 has been too negative on the company since the growth suddenly stopped since it seems mainly related to one customer with quite low margins. The company seems quite aggressive to get back to growth, they are looking for 5 franchises and 2500 new seniors before the end of 2020.
I am long Veteranpoolen B shares. Shares have been accumulated between 16,6 and 17,2 SEK.
Sources
Idea stolen from @Edd_Invest on TwitterClosest competitor:
https://www.proff.se/bokslut/veterankraft-ab/danderyd/uthyrning/2K2UNLQI5YIEZ/
Interview of a franchise (in Swedish): https://podcasts.apple.com/no/podcast/anders-brorstr%C3%B6m-fr%C3%A5n-ikea-chef-i-moskva-till-franchisetagare/id1217909249?i=1000413589896
Appreciate all feedback
/Markus
A great read!
What’s interesting is that they maintain great margins for a recruitment agency. It’s really a crowded industry and, if I’m not mistaken, the three largest players globally have something like 17% market share combined. More impressive is that Veteranpoolen have managed growth and somewhat stability in 2018 and 2019, whereas several competitors have pointed out the tough market conditions. And, not at least, how they’ve managed to get through the hardest year of them all – 2020.
It’s probably not fair to compare Veteranpoolen with Adecco, Manpower or Randstad, as they operate across several business areas and are global players. However, it’s worth pointing out that temporary recruitment (which I’d guess describes VAPB the best) is a low-margin segment with high volumes for these players. So. again – being able to have gross margins in the range of 45 – 50% is damn good!
Thanks! They certainly found a lucrative niche and the franchise model seems quite lucrative, question is will be able to scale much further. Baby boomers should help the supply of pensioners. And next question is can they keep control of their niche.
Wonderful analysis Markus. I have never looked at the company before and thought it was a very interesting reading. Exciting niche. One of the best ideas I have seen in a while! Thanks for sharing.
It looks like the competition in the future is low and the degree of difficulty for others to get such a network of pensioners as Veteranpoolen has created is very hard.
High margins normally attract competitors, but it seemed that this network of 8,000 retirees is difficult to compete against.As the workforce is old do you know how rough a prolonged COVID-19 is for the company? Do you know why they lost their one big customer during Q4 in 2019?
Did some research on the recruitment and staffing agencies today, as I keep finding some interesting valuations. Talked with a couple of people in the industry from both sides: From the agencies themselves and the customers. I think some of the thoughts would be of value, even though not everything applies to Veteranpoolen:
Most recruitment agencies have become trapped between intense competition, the widespread use of HR-departments or HR-consultants in organizations and a higher demands from customers. It shows in the margins. There is no stickiness either, as customers are loyal to the individual consultant in the agency, rather than the agency itself.
What the customer really needs is a continously updated candidate base. The problem for the agencies, is that this is a high-workload task with low margins. They prefer to serve the customer throughout the recruitment process (about 100 000 kr nok), and a candidate base is in the range of 30 000kr nok. This database needs a lot of man hours to be updated at all times, and thus it’s not a thing that’s really worth doing for the sake of only selling that service.
Another problem is that recruitment agencies is a direct competitor with the internal HR-people. They offer what the HR-consultant do. So a company who can afford a throughout recruitment process, which is what the agencies want, often have their own people who do the valuations, testing etc. A company without HR, cannot afford it either.
Temporary staffing and more specialized recruitment agencies are a different beast in itself.
When a company needs temporary staffing, they probably need it immediately. The HR-people doesn’t have the time or the database for hiring themselves. If they recruit someone that’s not good enough, it doesn’t really matter as they are temporary. It’s more convenient to give control over to the agency rather than doing a tedious process on their own.
With a more specialized marketplace, where different industries needs different and niche competence, the need for a specialized recruitment agency is high. In terms of hiring into more vulnerable positions, like management, many prefer to put money into a good process with objective counsel from a third party such as agencies. This kind of service costs about 200 000kr and up from a to z, without that many man hours more than a lower-level recruitment. Alas, the margins are better and the relationships are stronger, and thus stickier.
Just some thoughts from my conversations.
Thanks, great input Tommy!
Q4 of Veteranpoolen was disappointing to me, however, the market sent it up 19% (as we speak) so sold about 1/3 of my holding. They have suggested a dividend of 2,75 for 2019 and 2020. Management is blaming the 13% YoY decline on Covid (all pensioners above 70 cannot take engagement involving other people), but still, around 10% out of the 13% is related to the large engagement lost in Q4 2019.
Sold quite a lot more at 26,5.
Fredrik Grevelius, in the BOD, sold a bit also from 3,55 % to 3,37 %.
Large growth in the number of hours in March. I sold my last portion today at 29.4. I really like the Company so I think I’ll be back.
Veteranpoolen AB produced about 59 500 hours in March compared to about 52 500 hours in March 2020. The March 2020 figures include about 3100 hours of a large client that the company has lost. Covid has naturally had an effect, especially on the March 2020 figures.
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