There may be dramatic differences in the Beta on other stock exchanges. In this case, one must be certain of what comparison is being made. In addition, differences in currencies may produce different results. The beta, in this case, is not a reliable means of assessing company performance. However, it can be valuable from the standpoint that it reflects the connection between Randstad and it dependence on the global economy.
The Shareholder Value Added approach defines value as the corporate value, less the value of debt. It focuses on the change in value over time. It is usually calculated for several periods of time, using he debt and equity in each period. However, like the other methods, it becomes less accurate over the long-term. The more distant it becomes from the event, the less accurate this method tends to be.
Each of the valuation methods mentioned earlier has drawbacks in terms of presenting an accurate picture of the company. Valuation methods such as NAV, P/E, EBITDA, and Beta analysis are mechanical means of valuation. They all give useful information that can provide added information, but they are not dependable as a sole means of valuation. The future is dependent on many factors and shareholders cannot rely solely on the quantitative aspects of the analysis to make their decision. Qualitative aspects, such as the competitive outlook, economic trends and other factors can affect the future of the company. Many of these methods are valuable for short-term forecasts, but they all are at a disadvantage as the time grows further from the event.
Many companies restrict themselves to the use of only one type of financing strategy. However, this is not the case with Randstad. The type of financing used depends on the country and size of the project that is being considered. It will have different rates for different purchases, depending on where in the world the project takes place. The only example of financing instruments used by Randstad is the purchase of Vedior. They financed this acquisition using part in shares and debt financing of the cash component (Randstad Annual Report 2009).
They tend to finance using floating rates, under the assumption that floating rates tend to be lower than fixed rates (Randstad Annual Report 2009). They protect themselves from potential shocks using this method by having in place a set of actions to take in the event of severe market circumstances. They operate under the assumption the when economic downturns threaten to weaken their earnings, interest rates will be forced down to compensate (Randstad Annual Report 2009). In general, this is the case, and it is assumed that plans are in place, just in case this paradigm does not occur. All decisions and analyses are considered by the Group Treasury Department. This represents a centralized approach to financial decisions that is not typical in the corporate setting.
One of the key instruments that shareholders consider in their investing decisions. Dividends adds value to the stock purchase, transferring it from a value-based stock to an income producing stock. Dividends are meant as a means to entice investors with something a little more than projected increases in share price. However, they represent a liability to the company. Dividends are given when it is strategically necessary to entice shareholders.
Randstad updated its dividend policy in 2007. Their new plan included a floor of 1.25 euros and a consistent dividend growth through the cycle (Randstad Annual Report 2009). The payout ratio was set at 40-60% of the net profit, which as adjusted for amortization of acquisition-related other intangible assets (Randstad Annual Report 2009). This was an attractive dividend. Randstad tested it against the risk of the Vedior acquisition and decided that even under the worst-case scenario that they would still be able to meet their dividends (Randstad Annual Report 2009).
However, the market conditions were worse than expected and they had to forgo their dividend payouts to shareholders for 2008 (Randstad Annual Report 2009).
This represents one of the risks of investing. Sometimes things happen that are beyond the control of the company and shareholders do not get their expected returns. This is an unfortunate, but occasional expected risk. The real question is whether this unexpected failure to pay dividends will affect shareholders decisions to buy in the future. This failure to pay is not the fault of the company, but rather result of deteriorating markets on a global basis. The affects of this decision will depend on whether shareholders decide to hold it against them, or if they are willing to accept the explanation that this unexpected loss is due to factors beyond their control.
Company Objectives and Performance
One of the key factors in the valuation of a company is their ability to meet stated goals and objectives. Their failure to meet dividend objectives does not bode well for their recent goals and objectives as well. The company has recently restated its financial goals to focus on the long-term. This is a reaction to the unexpected economic downturn. In the fourth quarter of 2008, the company experienced negative shareholder returns. This forced Randstad, and many others, to rethink their strategy and goals.
They decided to readjust to a strategy that protected them in the short-term, and that focused on the long-term (Randstad Annual Report 2009). They do feel that the economy will recover in the future and that growth in the staffing industry will once again be strong. Their current strategy is to wait it out until things turn around. At this juncture in time, this is about all that they can do.
Conclusions and Recommendations
Through out this study, we have examined many different valuation methods with the hopes of being able to estimate whether to purchase shares of Randstad. Valuation methods that rely on quantitative methods and calculations as the basis of their decision-making were found to be inadequate in this case. In some cases, the ratios were difficult to derive due to the complexity of the company and due to the failure of the company to post all of the necessary math problems.
This year, the financial markets and the downturn of the global economy produced an unexpected shock, not just to Randstad, but to all companies in the staffing industry. The success of Randstad and the staffing industry on a strong economy. The downturn in the economy was worse than anyone expected and many companies had to make tough decisions like those that were made by Randstad in order to survive. The real question in the decision as to whether to purchase Randstad's stock is whether one feels that they will be willing to survive the current economic downturn and to return to economic prosperity in the future.
Randstad is a giant in the global staffing industry. They have been harmed little by the economic downturn due to sound strategic management and diversification. Their most recent share price does not reflect a reason for concern. They have refocused their corporate strategy to provide stability to ride out the storm and to provide for long-term growth. These are perhaps the most important factors to consider during a market downturn such as this. Companies that are able to re-focus their strategy to one with a more long-term strategy are much more promising than those that are short sighted.
This corporate strategy reflects a promising future. They have a strong foundation and are a global leader that is focused on growth. Although, they have been experiencing some of the same hardships as other companies, they have a solid plan for waiting until the market turns around. For this reason, a buy recommendation would be appropriate regarding Randstad Holding.
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