7th Nov 2014 10:21
LONDON (Alliance News) - Staffline Group PLC was named a preferred bidder by the Ministry of Justice on Friday to provide provide probation and rehabilitation services in Warwickshire and West Mercia, after the government was unable to reach an agreement on the contract with US outsourcing company Geo Group Inc.
Staffline said its EOS subsidiary will manage the delivery of all probation and rehabilitation services to low and medium risk offenders in the region as part of the MoJ's Transforming Rehabilitation programme.
Geo's Geo Group UK arm had been named as the original preferred bidder for the contract, as part of the Geo Mercia Willowdene consortium alongside social enterprise Willowdene Rehabilitation and probation staff-run mutual Mercia Community Action.
The MoJ said on Thursday it had been unable to reach a deal with Geo Group UK and said it had started talks with EOS instead. It added the programme for awarding contracts is on schedule, with providers expected to be in place and handling the services by early 2015.
"We look forward to working alongside the probation and rehabilitation services to support the broader community in Warwickshire & West Mercia," said Staffline Chief Executive Andy Hogarth.
The contract win marks a turnaround for Staffline, which had originally bid unsuccessfully for four contracts in the programme. Shares in the group dropped on the news it had not won any contracts when the original announcement was made at the end of October.
The MoJ named the preferred bidders for all 21 of the rehabilitation services contracts then, with Interserve PLC the only UK-listed company to have won a place on the programme.
Liberum, which at the time said the unsuccessful bids for Staffline, Capita PLC and Carillion PLC were negative for those companies, said the win for Staffline now will broaden the recruitment company's offering.
The broker said it retains its Buy recommendation and 1,062 pence target price for the stock, saying that while it is leaving its earnings estimates unchanged, the new contract should broaden Staffline's business, reduce its contract concentration and should contribute around 4% to profits once fully implemented.
Though the Warwickshire & West Mercia portion of the MoJ contracts is among the smaller mandates, with an indicative value of GBP11.6 million to GBP14.2 million against an average per region of around GBP20 million to GBP25 million, it does diversify Staffline's contract exposure, formalises its relationship with a new government client, and will begin to mitigate the risks for when the current Work Programme contract comes to a close in 2016.
Liberum said it will leave its profit estimates for Staffline unchanged for the time being, but said it expects the contract will generate around GBP1 million per year to profit once it matures in 2016.
Shares in Staffline were down 1.3% to 843.70 pence on Friday.
By Sam Unsted; [email protected]; @SamUAtAlliance
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