Small Caps | Mar 05 2021
This story features PEOPLE INFRASTRUCTURE LIMITED. For more info SHARE ANALYSIS: PPE
Despite disruptions caused to labour services by the pandemic, the key verticals of nursing and IT are expected to provide People Infrastructure with robust growth
-Healthcare/technology verticals lag
-But outlook improving
-Gradual margin expansion anticipated
By Eva Brocklehurst
There is plenty of growth on offer for People Infrastructure ((PPE)) as the labour services business emerges from pandemic-related restrictions and disruptions.
Throughout the pandemic there were several aspects of the business that were resilient, including general staffing/industrial services and community services. Billable hours in the first half were up 20%, and new client gains and increased penetration are behind solid momentum seen continuing into the second half.
The company has guided to FY21 operating earnings of $35-37m and brokers suspect this is conservative as conditions are improving, particularly in Victoria. The balance sheet is expected to be deployed into acquisitions to complement the already attractive growth profile.
FY22 will be the first year of earnings post JobKeeper and Morgans expects People Infrastructure will exit FY21 on a monthly operating earnings (EBITDA) run rate of around $2.67m, equating to a base FY22 operating earnings forecast of $32m.
Add to that a full year's contribution from acquisition eCareer and organic growth and the broker believes the company can report FY22 operating earnings of $35m. After removing JobKeeper this equates to 16% growth.
Morgans finds the main negative from the first half update was the resignation of group CEO David Cuda and Moelis agrees the resignation was unexpected but the results, nevertheless, speak for themselves, with guidance implying a 15-20% upgrade to consensus estimates.
Ord Minnett believes JobKeeper, cash flow and management changes are a distraction and anticipates growth of more than 15% in underlying FY22 operating earnings.
The headline may have been weak in terms of cash flow conversion but the broker points out this is typical of the first half because of the hiatus in collections over the New Year period. Ord Minnett has a Buy rating with a $5.03 target and upgrades estimates to a allow for a stronger recovery.
Total billable hours are up around 70% from the April 2020 lows, although Morgans notes healthcare and technology verticals are lagging. Healthcare vertical billable hours were down -10% in the first half because of border closures, although these have bounced back by around 40% from second half levels.
Technology has been hit by a -40% reduction in permanent placements but management expects operating conditions will improve. Ord Minnett notes nursing was heavily affected at the peak of the pandemic but that is now recovering and permanent IT recruitment has strong leverage to a broader economic recovery.
Morgans considers the already-attractive growth profile is complemented by a strong balance sheet that can sustain acquisitions and retains an Add rating with a $4.11 target.
Gradual margin expansion can be expected, Moelis asserts, as the revenue mix shifts towards higher margin verticals such as healthcare, and the corporate platform gains scale. Health and IT have the highest rates of expected employment growth over the next five years as demand for services is supported by trends such as an ageing population and digitisation.
The broker agrees the company is well placed to execute on its acquisition pipeline and should it deploy the $60m balance sheet capacity this could generate more than 20% upside to FY23 estimates. Regardless, Moelis does not include this in its forecasts, maintaining a Buy rating and $3.99 target.
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