Business Services Are Enablers of Growth, Offer Value Opportunities

As the US economy begins to nose upward, and economic indicators seem to be showing more strength (unemployment at 8.3%, GDP growth speeding up), it is a good time to look at those companies whose job it is to enable businesses to grow, to bring new products to market, or to make their operations more profitable.  As a group, these companies are frequently referred to as Business Services, and they cover a long stretch of waterfront.  What they share is that they act as part of the infrastructure that businesses can call upon to help them move forward.  We will not be considering any accountancies — but they are an example of a Business Service.

Lightning simulation testing of a nosecone, courtesy NTSC

Philadelphia-based CDI Corp (NYSE: CDI;, for instance, provides engineering and information technology project outsourcing solutions and professional staffing services  in the US, UK and Canada.  CDI’s service is a wrap-around capability, offering business startup services (especially to medical-industry startups), a very broad range of engineering & design, head-hunting and personnel systems.  This sort of company allows its clients to “stick to their knitting” instead of worrying about administrative burdens.  For the third quarter of 2011 they reported revenues of $272 million, up nearly 10% from the previous year, with $0.15 per share of earnings, and a cash dividend of $0.13 per share.  Shares closed on Friday at $14.97 vs a 52-week high of $20.34, with below-average daily volume of about 40,000 and an overall market cap of about $287 million.  Because they are difficult to classify, these companies, in spite of good growth and good results, frequently suffer from neglect, and may well offer a deep value opportunity as a result.

Wilmington MA-based UniFirst Corp (NYSE: UNF; is in the uniform business, providing protective wear, flame resistant clothing, laboratory gear, coveralls — and cleaning services, including decontamination services for various toxic substances.  They also supply restroom supplies and first-aid cabinets to a dizzying breadth of customer industries.  Founded in 1936 during a deep economic downturn, UNF reported strong rebound revenue growth of 14.6% in their fiscal first quarter ended Nov 26, 2011, with $313 million and $1.30 per share in earnings.  The Q1 dividend is $0.0375 per share.  CEO Ron Croatti was a hirsute laborer in a recent episode of CBS’s “Undercover Boss,” and you can see the whole episode on the UNF website.  Shares are selling for about $61.61, near the top of its 1-year range, and average volume is about 58,000 shares — again, lower than one might expect, given how well the company is performing.  Market cap is about $1.2 billion.

Calabasas CA-based National Technical Systems Inc* (Nasdaq: NTSC; is an outsource for engineering services and testing products to find out how long they last, what makes them fail, how rugged they are, etc.  They do a lot of government and aerospace work (testing flight instruments and landing gear, for instance), but also work for the auto industry, telcom companies, energy suppliers and makers of consumer products.  With more than 50 years of experience, NTSC also helps clients with engineering expertise and supply-chain management, and certifies ISO standards compliance.  Even so, it is probably the only pure-play testing lab listed on a major US exchange, and it languishes as a result because they are a one-of-a-kind company.  For the first nine months of their fiscal year ended January 31, 2012, NTSC revenues increased to $115 million, up 6.2% over the previous year, and earnings from continuing ops were $0.03 per share.  A substantial book loss from closing a Canadian facility led to a net loss, vs previous-year “normal” earnings of $0.10 per share.  Like CDI and UNF, NTSC is largely invisible to the public, and its stock sells for about $5.00 vs a 52-week range of $4.02 – $8.00.  Daily volume is low, at less than 6,000 shares, but the float is small too, with insiders as major holders. Market cap is about $57 million, about a third of annual revenue, in spite of a robust base business.  Look at this video if you want to be impressed:

NYC-based Volt Information Sciences Inc (OTC: VISI.PK; is a sizeable company, with 4th-quarter revenues in the range of $473 million, up from the previous year.  They hit a speed bump and are having to restate financial results for 2008 and previous years, and have not reported audited results for 2009 or more recent periods.  There is a big ongoing restatement assignment for their accountants, but they have been giving quarterly “estimates” of what is going on.  They operate globally and their clients are mostly Fortune 100-type companies.  They provide outsourced IT, engineering and workforce staffing for projects or fast-growth companies and divisions.  They also provide IT services, and a lot of engineering and construction services, as well as infrastructure services like operator services, directory printing (like yellow pages), etc.  Clearly difficult to categorize as well as in a ditch due to accounting difficulties.  Even so, cash balances seem to be improving, which may be a good sign, and VISI shares are selling for $6.99 vs a 52-week high of $10.80.  Daily volume is paltry (16,000 shares), and market cap is $146 million, less than 10% of annual revenues, which may point to a deep value opportunity for investors with patience and healthy blood pressure levels.

Finally, look at Minnetonka MN-based G&K Services Inc (Nasdaq: GKSR;  Also in the uniform business, GKSR has  additional product lines for the workplace, including special-purpose floor coverings, such as traction mats and anti-fatigue flooring.  They also provide maintenance products and linens.  Not a very exciting business compared to biotechs with a cure for cancer, but GKSR has been doing what they’re doing since 1902, and they are scooting along with 7.4% growth for their second fiscal quarter ended December 31, 2011, reporting revenues of $217 million and EPS of $0.51 per share.  Last week they declared a quarterly dividend of $0.13 per share.  Not shabby, especially with the stock selling for $31.20 vs a year-high of $36.54 on volume of about 83,000 shares.  Market cap, in spite of great financial performance, is only $587 million, about 50% of revenue, and that’s with a dividend yield of 1.7%.

Please do your own research.  We do not make recommendations; we just write about interesting companies.

* NTSC is a client of Allen & Caron, the publisher of this blog.  We do not hold or trade NTSC shares.


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