Improving revenue per employee --> share-price gains?

Reviewing the latest annual report from Andrews Sykes (ASY) reminded me about monitoring revenue per employee:

“ASY is one of the few quoted companies to use revenue per employee as a KPI. More companies should really use it, as employee talent can increasingly be a more lucrative resource than traditional tangible assets.”

Rising employee productivity can signal potential ‘scalable’ businesses, where additional sales may not require as much additional people, equipment, etc, which then can lead to improved margins and faster earnings growth.

There seems to be some loose correlation between improving revenue per employee and long-term share-price performance, at least within my portfolio.

The table below lists my 11 shares and their respective revenue per employee figures for the last 10 financial years:

£k 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
BVXP 179 183 226 272 333 394 453 583 581 645
SUS 240 260 284 406 466 550 611 498 528 479
TSTL 103 114 115 137 152 173 183 179 184 193
TFW 119 119 115 119 134 151 165 152 166 165
MTVW 1,986 1,789 2,360 2,544 2,744 3,068 2,897 2,510 2,256 2,237
SYS1 167 141 177 162 159 159 244 163 186 174
ASY 115 124 124 111 116 125 131 137 130 116
CLIG 537 443 381 346 362 339 435 465 437 462
MCON 296 387 347 292 260 256 300 229 257 235
TAST 45 43 46 46 42 45 42 45 43 30
WINK 284 286 275 204 173 174 164 177 146 139

(MCON: euros)
(SUS: Advantage Finance, 2012-2021)
(SYS1: 2016 year-end change)

And this table lists the percentage change to revenue per employee and the share price:

10-year Revenue/employee change Share price change
BVXP 259% 2,090%
SUS 99% 314%
TSTL 87% 1,260%
TFW 38% 415%
MTVW 13% 174%
SYS1 4% (12%)
ASY 1% 160%
CLIG (14%) 24%
MCON (20%) 44%
TAST (33%) (88%)
WINK (51%) 127%

The five shares with the best revenue per employee improvements also displayed the best five share-price gains over the same ten years.

Among the other six shares, a clear correlation does not seem to exist. M Winkworth (WINK) for instance has seen its shares more than double while its revenue per employee has dropped 51%. So other factors beyond employee productivity can come into play.

Still, companies exhibiting improving revenue per employee could be worth investigating. With hindsight, you could have spotted the improving trend at Bioventix (BVXP), Tristel (TSTL), FW Thorpe (TFW) and perhaps S&U (SUS) and Mountview Estates (MTVW) during 2013-2015…

BVXP sharepad share price

TSTL sharepad share price

TFW sharepad share price

SUS sharepad share price

MTVW sharepad share price

…and then enjoyed decent gains during the following years.

Does anybody else monitor revenue per employee? I do feel it can be a leading indicator for companies starting to enjoy more attractive economics, and positive trends may emerge earlier than for conventional ratios such as return on equity.

Maynard

2 Likes

It looks like a useful indicator to add to the collection. I have tried it out on my portfolio and it seems to correlate quite well. However, it does throw up curious anomalies which might have to do with how employees are being counted - whether number at year end or some kind of average. Also I wonder how it might be manipulated by outsourcing certain functions, so that the employee number is artificially reduced. Looking at trends in the numbers is a good way of finding things to discuss and investigate, however. I also wonder if it makes a difference to use profit instead of revenue as the numerator?

1 Like

Hi Diogenes,

Yes, good points. How part-time employees are accounted for may influence matters as well. But as long as the company is consistent with the employee reporting, then we are looking for an improving trend rather than judging the absolute level or making comparisons with other businesses.

I would go with revenue. Profit can be influenced by all sorts of adjustments and rising costs may have nothing to do with employee numbers. Revenue is a much simpler number and extra employees are generally taken on to either a) generate more revenue or b) provide support because of the revenue already generated. I think I would check margins to ensure the extra revenue that is produced is earning a satisfactory level of profitability.

Maynard

Hi Maynard,
I also agree that rising revenue/employee is a useful trend to pickup in companies with improving profitability/efficiency.
Presumably you’d need to focus on the last 3-5 years to identify future winners before takeoff.
Does sharepad throw up anything interesting on this basis?
Best
Steve

Hi Steve,

SharePad gives the following 32 names as having demonstrated rising revenue per employee (R/E) every year for the last five years (R/E figures in 000s):

Company Ticker Mkt cap R/E latest R/E 1yr ago R/E 2yr ago R/E 3yr ago R/E 4yr ago R/E 5yr ago R/E 5yr change
Caspian Sunrise PLC CASP 50.7 180.72 139.57 79.74 17.46 14.01 12.20 1,381%
eve Sleep PLC EVE 11.6 484.98 350.78 334.79 308.28 249.31 50.54 860%
Best of the Best PLC BOTB 253.3 1,046.40 592.28 249.00 183.25 153.11 124.61 740%
Mind plus Machines Group Ltd MMX 64.3 1,051.80 820.33 656.26 650.68 483.90 131.75 698%
Proteome Sciences PLC PRM 23.8 226.33 211.64 117.27 109.03 83.15 58.81 285%
UK SPAC PLC SPC 5.2 1,049.40 737.32 576.91 437.95 394.94 347.12 202%
Mears Group PLC MER 205.7 142.82 100.26 76.22 71.56 59.81 48.95 192%
Westminster Group PLC WSG 11.6 42.50 41.72 28.62 18.83 18.32 15.70 171%
Rosslyn Data Technologies Ltd RDT 18.4 129.25 128.98 96.02 81.54 74.40 52.33 147%
EKF Diagnostics Holdings PLC EKF 350.3 194.23 145.36 141.81 140.49 129.06 82.32 136%
Good Energy Group PLC GOOD 46.7 496.76 446.97 394.98 339.31 288.27 238.08 109%
RTC Group PLC RTC 7.3 439.76 439.58 416.14 360.24 326.44 223.02 97%
MySale Group PLC MYSL 68.4 770.78 686.17 624.37 496.09 434.98 424.20 82%
Arcontech Group PLC ARC 22.7 211.07 202.93 180.00 153.87 142.80 125.29 68%
McColl’s Retail Group Ltd MCLS 42.1 80.77 72.61 68.52 54.05 49.20 49.18 64%
Next Fifteen Communications Group PLC NFC 795.7 155.83 137.75 137.65 131.27 106.22 96.47 62%
Severfield PLC SFR 242.3 248.76 229.10 203.41 198.20 180.11 160.33 55%
Christie Group PLC CTG 27.1 27.56 26.01 25.29 23.47 20.92 17.82 55%
Rio Tinto PLC RIO 99793.4 939.18 938.37 853.09 851.70 662.14 633.25 48%
Tesco PLC TSCO 17338.4 160.01 141.53 140.64 130.47 120.38 111.86 43%
Ashtead Group PLC AHT 23300 238.37 232.43 213.69 204.21 172.06 166.81 43%
Reckitt Benckiser Group PLC RKT 46057.5 359.30 345.51 337.41 319.30 273.31 255.73 40%
NMCN PLC NMCN 16.4 236.78 223.10 213.80 196.93 185.04 169.30 40%
Imperial Brands PLC IMB 15024.2 1,001.90 966.18 903.15 894.88 815.16 720.48 39%
Computacenter PLC CCC 3055.6 326.63 314.48 271.24 259.43 242.85 235.51 39%
Halma PLC HLMA 9779.7 183.97 179.58 169.88 165.49 144.43 136.59 35%
Hays PLC HAS 2930.4 568.18 527.55 524.17 508.20 457.40 425.98 33%
Dixons Carphone PLC DC. 1593.4 279.78 247.36 244.26 232.83 231.43 211.88 32%
Safestore Holdings PLC SAFE 2008.1 249.69 238.68 227.69 215.78 212.52 200.00 25%
CRH PLC CRH 29089 357.81 350.34 304.99 304.31 300.43 291.49 23%
Card Factory PLC CARD 235 46.86 43.71 42.52 40.14 40.03 38.44 22%
Macfarlane Group PLC MACF 195.3 271.26 246.98 246.08 229.50 226.13 226.11 20%

Must admit, not quite the list of obviously scalable businesses I had imagined.

Maynard

I wonder if you combine it with requiring the number of employees to grow so that you don’t achieve growth in sales per employee by cost cutting it might help. Though this would only eliminate some names from the list. Thanks for running the numbers! Steve

I did think of that, but it would eliminate names such as Best of the Best, which have transformed into much better companies by reshaping their underlying operations with less employees. Such transformations may not be obvious to most investors, and perhaps where the best investment opportunities with this ratio could lie.

Maynard

RDT has been written about by Martin Flitton.
Arcontech and BOTB are backed by Leon Boros. You could loosen the filter by simply requiring sales per employee to be higher in t-1 than t-5, instead of improving every year which is a more demanding bar.

Started to get too many names. SharePad listed 742 shares with revenue of at least £1m and at least one employee in the last results and the results five years ago. Full spreadsheet attached for you to filter!
revenue per employee full list EXCEL.xlsx (527.9 KB)

Maynard