- People Infrastructure (PPE) has entered into agreements to acquire two nursing businesses in Sydney which will significantly increase the company's scale in this attractive sector.
- The businesses have been bought on an NTM EV/EBITDA of 3.6x which we view as attractive and the acquisition is to be funded through a combination of cash and debt. After some model revisions we estimate FY19 EBITDA accretion of ~10%.
- After incorporating the acquisition into the model our blended target price increases (Morgans client access only) and we retain an Add rating.
Increasing scale in the nursing segment
PPE has entered an agreement to acquire Network Nursing Agency Pty Ltd and Australian Healthcare Academy Pty Ltd (collectively referred to as the "Network Nursing Agency" (NNA)) for A$8.0m.
NNA was established in 1997, and is a leading Sydney-based nursing agency specialising in supplying general, critical care, mental health, midwifery, aged care nurses, and facilitation to private and public healthcare clients across Australia.
Australian Healthcare Academy is a provider of premium healthcare training and education to healthcare professionals in Australia. The acquisition will be funded out of cash and debt facilities.
PPE expects the acquisition to contribute A$2.2m in EBITDA and A$1.2m NPATA over the next 12 months (September 2018 - September 2019).
We estimate FY19 contributions of A$1.83m and A$1.0m respectively and PPE is forecast to have net debt of ~A$14.0m post the acquisition.
We estimate the company will finish FY19 with a ND/EBITDA ratio of 0.7x (A$12.5m net debt).
After incorporating a ~10 month contribution from the NNA acquisitions and after making other minor adjustments to our model forecasts our FY19 EBITDA estimate increases 10.4% to A$17.6m while NPATA increases 7.1% to A$10.8m.
FY20 will be the first full year post the NNA acquisition and we now forecast EBITDA of A$19.9m and NPATA of A$12.3m, up 10.5% and 5.8% respectively.
Reporting 24 August
PPE is due to report its first result since listing in late 2017 on 24 August 2018. At the IPO the company forecast FY18 EBITDA of A$12.0m and NPATA of A$7.4m.
During FY18 PPE acquired Recon (an IT recruitment and consulting business) and opened a nursing business. We currently forecast EBITDA of A$13.2m and NPATA of A$8.0m and a fully franked final dividend of 3cps.
Retain Add rating
Following the above earnings changes our equal weighted EV/EBITDA, PE multiple and DCF based target price increases – Morgans client access only.
Key risks include overall employment markets and general economic conditions, variations in legislation and government policies, loss of key customers, customer safety and integration risk.
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Disclaimer(s): Morgans Corporate Limited was a joint lead manager and underwriter to the initial public offer of shares in People Infrastructure Limited and received fees in this regard.
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