Vienna Convention Company Value: Randstad

Vienna Convention Company Value: Randstad Holding NV Randstad Holding is one largest temporary and contract staffing agencies in the world. Based in the Netherlands, it offers temporary staffing for a number of different levels including middle and senior management (Google Finance 2009). Randstad is separated into five divisions including temporary staffing, permanent placement and specialties, management professionals, employee professionals, and interim projects (Google Finance 2009). It offers a number of services including HR consulting and solutions that are aimed at improving labor flexibility, retention, productivity and efficiency (Google Finance 2009).

The Randstad Group is a diverse enterprise and operates on a global basis. The following will explore the valuation of this company and its investment potential. Share Price Performance Over the past year, Randstad's stock price demonstrated little deviation from major market indices. In comparison with major competitor, Adecco, it has also experienced may of the same fluctuations. In general, one could summarize the performance of Randstad stock's behavior as typical of the various instruments for comparison.

The following chart summarizes Randstad's stock and compares it with the Dow Jones, FTSE-100, and Adecco. Averages for the indices have been normalized for comparison. Data Source: Yahoo Finance UK. http://uk.finance.yahoo.com/echarts?s=RAND.AS#chart1:symbol=rand.as;range=1d;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined Randstad is a large company with exceptionally diverse holdings. This helps to stabilize their stock price. Each sector of the company only accounts for a small percentage of the company assets.

Therefore, a loss in one sector of the company does not affect the whole. When viewed in greater detail in comparison with major company news and events, it appears that Randstad does not react unpredictably to negative company news and setbacks. The stock tends to track the major indices without considerable volatility.

When the stock chart of a particular company makes major moves, one must attempt to discover events that may have triggered the movement, An examination of news and events from the Randstad website does not reveal any single major events that can explain the two major downturns in stock price. One of the key difficulties with this type of analysis is that the reaction by stock price often lags the event by several weeks. No single events were found that could trigger these stock price events on their own.

Unemployment is the key indicator that directly affects the operations of Randstand. Downturns in the economy create a decrease in demand for staffing agencies. The two major downturns found over the past year correspond to downturns in the global economy. According to Merens & Gionotten (2009) indicated that demand declined in 7 out of 9 of the major markets in which Randstad participates. These demands were organically produced and were not a result of actions by Randstand. Job growth or decline has a direct affect on Randstad's stock price.

The staffing industry is dependent on job growth and economic prosperity for stability. The best strategy against shocks due to job growth or unemployment is diversification. This is a good management from a risk management perspective. In most cases, diversification results in more stability and the avoidance of negative4 reactions in stock price. However, the situation that Randstad faces and the one that is being faced by the rest of the world is unusual in its scope and scale (Whitehouse.gov 2008).

The current economic situation is creating declines in job growth on a global basis. This is a bad situation for all of the staffing agencies. However, due to its size and marketshare on a global basis, Randstad is in an excellent position to ride out the current crisis and to emerge from it no worse for the wear. Its risk reduction strategy will be the key factor in its ability to withstand these global shocks.

Company Valuation When one discusses the market value of a global giant, such as Randstad, it is difficult to devise an accurate method for valuation of the company. There are many factors that must be taken into consideration in the valuation process for a multi-sector conglomerate. The recent acquisition of Vedior NV created a company with combined annual sales of approximately 15.9 billion euros (Kanner & van de Pol 2007). Often shareholders do not have sufficient information to make an accurate determination of the market value of the company.

The reported market value of Randstad is approximately 15 billion dollars. The approach taken to valuation can produce different results. Valuation methods are as different as individual investors. Every investor develops their own method of valuation for the company. One of the key questions that must be answered is what constitutes value. From an accounting perspective, it is related to return on assets and financial goals. However, the question on every investor's mind is not what the company is worth now, but what it will be worth in the future.

Accounting can provide a snapshot of the present and can describe historical trends, but it cannot accurately predict every possible factor that could influence the future. For instance, the global economy is largely to blame for recent stock price dips, but there is no guarantee which direction it will go in the future. Investors use their valuation methods to make predictions about the direction that the company will take in the future.

Factors such as corporate strategy, the competitive landscape and general economic conditions can affect the future value of a corporation. This is particularly true for large corporate giants such as Randstad. The goal of the shareholder is to increase their own value in the future. They use several instruments to accomplish this goal. They receive dividends and an increase in capital appreciation. These two factors add up to the shareholder's return. The question on every stockholder's mind is whether we can trust the numbers.

The reported value of Randstad is over 15 billion euros. Information regarding long-term debt is not provided to the public in the annual report. Therefore, one cannot calculate the NAV using the information provided. The problem with the NAV method is that differences in accounting methods can affect the results. Differences in accounting for intangible assets, such as goodwill or brand equity can affect the value using the NAV method. In addition, the NAV methods ignores the earning power of a company's assets.

The P/E ration is another valuation that compares the price per share with the earnings per share. This method suggests how quickly a firm will recover its current share price using earnings. Price to Earnings ratios are evaluated by comparing them to the industry means and market medians. Companies with higher P/E ratios are considered to be growth stocks. According to Hoovers (2009), The P/E ration in 2008 was 277.78. This compared to an industry median of 18.76 and a market median of 21.98.

This exceptionally high P/E ratio would lead the investor to consider Randstad to be an exceptionally lucrative growth stock. However, like NAV, it depends on accounting distortions that may lead to an exaggeration or overstatement of profits. Companies that with to inflate their stock price can manipulate their P/E ratio to make it more attractive to investors. This scenario puts an emphasis on the conflict between corporate interest and shareholder interest. The company can manipulate the P/E ratio in an attempt to manipulate their investors.

EBITDA is another measure that is used to value a company. This number reflects a company's profit before deductions such as interest, tax depreciation, and amortization. The reported EBITDA for Randstad grew from 267.80 in 2004 to 744.00 in 2008, with a goal of an average EBITA margin of 5-6% (Randstad Annual Report 2009). Company analysts feel that this ration is sufficient to ensure the company's financial position, yet allows them to continue to invest (Randstad Annual Report 2009). The company develops separate EBITDA goals for each of its three major divisions.

According to the company, downturns in Germany and the U.S. harmed their ability to meet EBITDA goals (Randstad Annual Report 2009). EBITDA has the same problem with potential distortions as P/E and NAV. Discounted cash flow is another valuation method used to make investment decisions. Randstad is a complex company due to the number of different environments in which it operates. There are many factors to consider due to number of markets and financial instruments that they employ. Randstad uses its own hybrid method for computing its discount rate.

It uses the discount rate of 9% (Randstad Annual Report 2009). However, sufficient details were not provided to determine if this number was accurate. Like the other valuation methods, this method is mechanical in nature. It is difficult to estimate future cash flows in a realistic manner, as one cannot account for shocks, such as the current economic downturn. The more distant the time period extends into the future, the more difficult accurate estimates become. Reuters (2009) lists a Beta of 1.20 for Randstad, when compared against the Amsterdam Stock Exchange.

Other financial websites do not list a Beta for this company. This may be due to the fact that RAND is listed on several exchanges on a global basis. 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. Company Financing 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. Dividend Policy 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.