Small Caps | Sep 04 2019
Brokers are excited as more than 70% of People Infrastructure's operating earnings are now derived from healthcare and IT, segments with the highest rates of expected employment growth over the next five years.
-Scope for further acquisitions
-Significant beneficiary from NDIS
-Multiple avenues for earnings growth
By Eva Brocklehurst
The outlook for workforce management company, People Infrastructure ((PPE)), is particularly buoyant as it has achieved strong earnings growth despite integrating six acquisitions over the past 12 months.
Returns are continuing to rise as the business focus shifts to high-margin areas and corporate overheads are amortised over increasing revenues. The company's profit in FY20 will be heavily skewed to healthcare & social services, 49%, and information technology, 20% – defensive and fast-growing industries.
Moelis considers the business is under-appreciated in this regard, as more than 70% of operating earnings are now derived from these high-growth and defensive verticals, which have the highest rates of expected national employment growth over the next five years.
The valuation is compelling, the broker suggests, with over 40% of earnings growth priced in at just a 14.5x price/earnings (PE) ratio. Moelis has a Buy rating with a target of $4.06.
Morgans, too, likes the earnings growth profile, given the scope for further acquisitions and a supportive macro backdrop. The company expects continued organic growth across the business and reported strong revenue growth of 27% in FY19. Operating earnings (EBITDA), at $17.8m, were up 42.8%.
The company will also be a significant beneficiary from the roll-out of the National Disability Insurance Scheme (NDIS). Morgans has an Add rating and $3.83 target, valuing the stock using a blended PE multiple and discounted cash flow.
FY19 results met Ord Minnett's forecasts and the broker believes the upcoming year provides an opportunity for the business to leverage its expertise across health care. There are multiple structural tailwinds including enhanced disability funding, an ageing population and an undersupply of nurses.
On the IT front the company's capability is similarly favoured, as new technologies continually emerge and updates are a recurring theme. Technologies are often complex and rely on a high level of expertise to integrate.
Ord Minnett maintains a Buy rating and $3.74 target. The company has delivered consistent earnings growth since its initial public offer. Each new acquisition has also opened up other geographies or verticals, and revenue synergies by cross-selling staff and/or expertise.
This is a key quality of the stock, in the broker's view, as there are now multiple avenues for growth in the next 12 months. The main driver of earnings is the staffing business, providing nurses and allied health professionals, but specialist services in payrolls, facilities maintenance and contract planting have also contributed.
See also People Infra Raises Profile In Healthcare on July 3 2019.
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