KELYA Kelly Services Inc

Manpower Inc. (MAN), one of the leading employment service providers, is offering €350 ($438.6) million worth of senior notes, due June 22, 2018. The notes carry an annual coupon rate of 4.5%. Furthermore, the company priced the notes at 99.974%, thus generating a yield of 4.505%.

Earlier, the company announced its intention to refinance its €300 million notes due June 2012 through the issuance of debt. We believe that the move is quite justified as borrowing costs have gone down despite the significant disruption in the global credit markets.

In fact, many other companies are issuing debt to exchange their higher-interest debt for lower-interest debt. Apart from this, the companies intend to utilize the amount from the offering for common business purposes while boosting shareholders’ return through share repurchases and business expansion.

In addition, corporate issuances are in high demand as U.S. treasuries are yielding low rates, driving investors toward the bonds issued by sound companies.  

At the end of the March quarter, Manpower had cash and cash equivalents of $553.5 million with total debt of $721.8 million, or a net debt position of $168.3 million. However, the debt-to-capitalization ratio was just 22%, which is pretty low. Therefore, the only constraint on raising debt appears to be liquidity. In any case, since the company will be using the proceeds to retire old borrowings, the debt position is unlikely to change much.

Manpower’s comprehensive range of services makes the company a true global staffing firm. The company provides services to the entire employment and business cycle including permanent, temporary and contract recruitment, employee assessment and selection, training, outplacement, outsourcing and consulting.

Furthermore, the company’s brand value and strong global network provide a competitive advantage and reinforces its dominant position in the market. Manpower also benefits from growth prospects in the under penetrated staffing markets of Italy, Germany and the Nordic region, and has significant operations in high-growth emerging markets of India, China and Eastern Europe. Consequently, the company has good growth potential.

However, the employment services industry is highly competitive with limited barriers to entry, and Manpower faces stiff competition in both domestic and international markets from other established players, such as Randstad and Kelly Services Inc. (KELYA). The intense competition may limit the company’s market share and impact its profitability.

Currently, Manpower holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.

 
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