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  TeamStaff hopes government austerity is path to profitability

BENJ GALLANDER and BEN STADELMANN

Thursday, January 12, 2012

One of Benj's favourites for 2012 is a company that has struggled for years without making a profit — a quality that is one reason people might choose to avoid TeamStaff like the plague.

TSTF operates primarily in the healthcare industry, providing staffing services, logistical and technical support and delivery solutions. It has narrowed its focus in recent years to concentrate on the government sector. This initiative to concentrate on selling to federal agencies and the military was stimulated by CEO/president Zachary Parker, who joined the enterprise two years ago.

Parker had a history of dealing with government when he joined this enterprise, having worked for VT Group, a firm that caters to the aerospace and defence sector. Prior to that, he spent 19 years at Northrop Grumman, part of it as executive director of business development.

Why might the company be moving towards profitability after numerous years of revenues of around $40 million (U.S.) and bottom-line losses over $4 million? First, the corporation is now focused on larger, higher-margin contracts, which are more cost-efficient. And, somewhat ironically, the cutback in government spending could bode well for this company, as some labour will need to be outsourced. TeamStaff is lining up for those contracts.

Recently, numerous deals have been snagged. Some bigger ones include the TACOM transaction, valued at $225 million and a Veteran Affairs agreement worth $140 million. There are also numerous possibilities with the Naval Surface Warfare Center, where TeamStaff can now bid on contracts.

TSTF has only about 6 million shares outstanding, but that does not tell the tale of the tape, as the company has a history of stock consolidations. In 2008 it did a 1-for-4, and in 2000, a 1-for-3.5. Investors have to be wary that the enterprise does not start issuing too many shares once again, leading to another reverse stock split. Those usually kill the trading price.

A seemingly perpetually cash-poor business, TeamStaff is fortunate to have come out of the years of losses with debt of only $1.5 million. One would have suspected that the recurring red ink and negative cash flow would have burdened the company even more. The stock currently trades at about double book value. Insiders own almost 30 percent and were heavy buyers last March when the stock price was in the 50-cent range. They have not been selling.

While the stock has retraced its footsteps somewhat, it appears to have the potential to build on previous momentum. It touched a 52-week low of 36 cents last February, before bounding to $3.27 in July. It has since settled below $2.00. It would be no surprise to see a triple from this level. Given the lowly market capitalization of less than $12 million, it would also not shock to see a suitor come calling before that can be achieved.


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