PeopleIn: Balancing its portfolio

About the author:

Kurt Gelsomino
Author name:
By Kurt Gelsomino
Job title:
Former Analyst
Date posted:
09 February 2022, 1:00 PM
Sectors Covered:
Building Materials, Industrials, Gaming

  • PeopleIn (ASX:PPE) has expanded into the Accounting & Finance recruitment sector through the A$16.0m acquisition of Perigon Group (3.7x FY23F EBITDA).
  • With existing key management retained, earn-out hurdles in place and initial cross-selling opportunities identified, we think PPE is well placed to grow this business.
  • We expect a solid interim result on 18 February and organic growth to accelerate over the 2H22 as COVID challenges normalise. Current international candidate sourcing initiatives should deliver benefits in FY23.
  • With a solid organic growth outlook, potential for further accretive M&A and an undemanding valuation (FY23F PE of ~11.5x), we maintain an Add rating.

Expands into Accounting & Finance recruitment

PPE has entered into an agreement to acquire Perigon Group, a specialist provider of contract and permanent placement recruitment services across the Accounting & Finance industry.

The business was established in 2010 and is headquartered in Sydney with offices in Brisbane and Melbourne. We understand Perigon’s earnings are relatively evenly split between contracting and permanent placement.

The upfront cash consideration is A$16.0m and up to a further A$10.8m in deferred consideration (two tranches) is payable based on the delivery of agreed EBITDA hurdles over FY22-24. With Perigon expected to contribute pro forma FY23 EBITDA of A$4.3m (A$1.5m 4-month contribution in FY22), the upfront purchase price implies a 3.7x EBITDA multiple (consistent with PPE’s 3.0-5.0x target).

We think the total purchase price will be maintained <5x EBITDA in the event the entire deferred consideration is paid. The acquisition will be funded from its existing balance sheet capacity and PPE has guided to FY23F EPS accretion of ~8%.

PPE’s expansion into Accounting & Finance is consistent with the verticals flagged at its recent AGM. Management sees a strong medium-term opportunity to leverage its existing client relationships and cross-sell its Accounting & Finance offering across the broader group.

We understand there is limited overlap in the client base of Halcyon Knights and Perigon, with the combined management teams already identifying ~10-20 key cross-sell opportunities. Perigon founder, Nigel Barcham, will join PPE’s executive committee and continue as MD of the acquired business.

Expect a solid 1H22 result; organic growth to accelerate in the 2H22

PE will report its interim result on Friday, 18 February. While there were COVID-19-related challenges across Health & Community, Hospitality and Childcare during the period, we still expect a solid interim result and forecast 1H22 underlying EBITDA of A$20.5m (vs. A$21.0m the pcp) reflecting ~3% organic growth on 2H21 and ~A$3.0m from the Techforce and Vision Surveys acquisitions. We note PPE is cycling A$6m of net JobKeeper benefits in the 1H21 result.

PPE’s recent (Jan-22) trading update reiterated the current positive operating environment and comfort with FY22 consensus (EBITDA ~A$43.5m), which excludes the additional contribution from today’s acquisition. While the sourcing of candidates is clearly tight, PPE has been able to respond to strong client demand and margins are benefitting from wage inflation.

We think the Technology vertical has continued to perform strongly YTD and expect group organic growth will accelerate over the 2H22 as COVID challenges normalise. Management is proactively engaging with potential international candidates ahead of borders reopening, which will enable it to capitalise on client demand in FY23. 

With its M&A pipeline remaining strong and A$50-70m of balance sheet capacity previously flagged (implies ~A$34-54m of capacity), we expect further acquisitions in the 2H22. Outside of Accounting & Finance, PPE has noted an intent to grow its Technology business and Vocational Training capability. We forecast leverage to exit FY22 at 0.9x and fall to 0.5x in FY23.

Investment view

We have incorporated the Perigon acquisition into our forecasts, which has seen our FY22F EBITDA increase to A$45.5m (vs. A$44.0m before) and FY23F EBITDA rise 8.2% to A$52.5m.

Our NPATA forecasts have increased 3.3%/8.2%/7.5% over FY22-24F. With a solid organic growth outlook driven by strong employment markets and market share gains and the potential for further accretive M&A, we maintain an Add rating and our target price rises 3% to (login to view) per share.

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