Result recap – a quick look
People Infrastructure (PPE) reported a strong 1H18 result which was above consensus expectations at all levels, particularly given the business has a traditional 1H/2H skew of approximately 49%. The company reported revenue of A$106.7m and EBITDA of A$6.2m. The underlying business EBITDA margin increased to 5.8% which compares to the prospectus forecast of 5.6%. 2H18 EBITDA will benefit from the Recon acquisition given it acquired the business on 11 January 2018 and we anticipate it will contribute approximately A$0.4m, NPATA of A$4.03m resulted in EPSA of 6.3 cents per share.
As forecast in the prospectus, no dividend was declared.
Strong demand for services set to continue
The company has reported continued new client wins during the half, while existing customers continue to demonstrate increasing demand for workers. The positive industry tailwinds in the company's key sectors continue to drive top-line growth.
Additionally, PPE has flagged cross-selling benefits and it is continuing to assess acquisitions in adjacent industries. Given the strong balance sheet, PPE is in an excellent position to pursue further accretive acquisitions.
Changes to forecasts
Following PPE's stronger than forecast 1H18 result we have made a number of changes in our detailed Research Note (Morgans clients can login to view). These have resulted in increases to our estimated EBITDA of 3.1% in FY18, 7.6% in FY19 and 6.7% in FY20.
We continue to forecast a final dividend of 3 cents per share for FY18.
Following earnings changes our blended EV/EBITDA and PE multiple based target price increases to A$1.68 (previously A$1.52). In deriving our valuation we apply a 7.0x EV/EBITDA multiple and 11.0x PE multiple to our FY19 forecasts and set our target price at our valuation.
Key risks include overall employment markets and general market conditions, variations in legislation and government policies, loss of key customers, customer safety and integration risk.
We retain our Add recommendation.
Morgans clients can login to view our detailed report and share price target for People Infrastructure (PPE). Alternatively, please contact your Morgans adviser or nearest Morgans office for access.
Disclaimer(s): Analyst owns shares.
Morgans Corporate Limited was a joint lead manager to the initial public offer of shares in People Infrastructure Limited and received fees in this regard.
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