PeopleIn: Reaffirming FY23 guidance and delivering growth

About the author:

Author name:

By Liam Schofield

Job title:

Analyst

Date posted:

20 February 2023, 8:00 AM

Sectors Covered:

Industrials

• PeopleIn (ASX:PPE) reported HY23 normalised EBITDA of $32.5m, 5.2% above our forecast of $30.9m, up 50% on the pcp. Normalised NPATA of $20.8m, was 6.8% above our forecast, up 49% on the pcp. Whilst sales exceeded our expectations, this was primarily driven by the contributions from recently acquired lower margin businesses.
• We have increased our FY23 and FY24 normalised EBITDA forecasts by 5.4% and 6.3% respectively, principally on the back of the strong HY23 result and the likelihood PPE can deliver at the top end of their FY23 guidance range (Normalised EBITDA: $62-66m).
• We retain an Add rating and increase our target price to (login to view). On our estimates, PPE trades on an attractive 8.8x FY23 P/E with a fully franked dividend yield of c.4.7%.

Result synopsis

Company reaffirmed FY23 earnings guidance for normalised EBITDA of $62m - $66m, pointing to the upper end of the range, should current economic conditions continue.

PPE delivered a strong HY23 result, exceeding both our expectations and the pcp. The result saw strong organic EBITDA growth of 11.8% exceeding management’s longer-run target c.10% pa. HY23 organic revenue growth was 21.3%, pointing to some deterioration in like-for-like margins. 

PPE has now delivered 22.6% CAGR EPS growth since FY15, whilst also delivering an RoE of 25.9% for HY23.

Revenue of $596.6m outperformed our expectations ($503.0m), however the business saw EBITDA margins reduce from 7.0% to 5.6%, principally the result of contributions from recently acquired lower margin businesses, driving the reduced beat at the EBITDA line (+5.2%).

Increase in debt capacity to $40m (previously $30m) to fund future acquisitions, a function of increased target debt capacity from c.1.5x to 2.0x (bank covenants c.3.0x).

Analysis

The implied 2HFY23 of c.$33.5m reflects modest growth on 1HFY23 ($32.5m) and should be achievable, given the strong performance of the ‘health and community’ division in Q2 vs Q1.

The business continues to perform well, beating management’s target for organic growth of c.10% pa (HY23: 11.8%). The EBITDA growth (vs pcp) of 50% was heavily influenced by the 2HFY22 acquisition of Perigon Group and FIP – both of which continue to exceed expectations.

Company management restated their ambition for long-run organic growth of c.10% pa and restated their target EBITDA margin ambitions of c.7.0% - two factors which point to the runway of earnings growth ahead. 

There appears to be some initial signs of weakness in the IT/Tech recruiting business, with permanent recruitment declining from c.70% of the sub-division to c.60%. That said, the demand for contract IT labour continues.

Forecast earnings update

We have increased our NPATA EPS estimates by 1.5% in FY23 and decreased 3.1% in FY24.

This is mainly due to increased EBITDA being offset against higher depreciation and interest changes, along with additional shares on issue following recent acquisitions.

Investment view

We retain an Add rating, increasing our target price to (login to view).

Find out more

You can find further detailed analysis of company results this reporting season by browsing our reporting season tag, and view a full list of upcoming results on our Reporting Season Calendar.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.