Ord Minnett is even more optimistic than MorgansCompany...

Ord Minnett is even more optimistic than Morgans

Company Result
PeopleInfrastructure Limited (PPE)

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Last Price:A$3.30

Valuation:A$4.73 (under review)

Recommendation:Buy(under review)

Risk Assessment:Higher

Event: 1H21 Result

PPE have reported underlying EBITDA of $21m, well above OMLe and consensus as the business experienced a sharp rebound from Covid. Revenue of $201m was 3% ahead of 1H20 and 5% better than OMLe, though this included $13.8m of jobkeeper. $10.1m of this was passed through to contracted employees, while $3.1m was retained (paid to internal employees). Costs were well controlled, and broadly in line with the pcp. Headline cash flow conversion was weak, however was largely attributable to the repayment of payroll, GST and income tax deferrals related to Covid support. Excluding this implies GOCF conversion of ~68% (OMLe), which while still soft, is in line with prior periods. In the past this has been due to delayed collections over the Christmas/New Year period and has been caught up in the 2H. The balance sheet remains in good shape with $26.7m of cash, the company has separately called out that it maintains up to $70m of acquisition capacity. A fully franked dividend of 4.5cps was declared. FY21 guidance was further provided, with $35m - $37m implying an upgrade to consensus of ~20% at the midpoint. 1H20A 1H21A %∆pcp FY20e %∆pcp Total Revenue 194.8 201.0 3.1% 191.5 4.9% Operating expenses -180.8 -180.0 -0.5% -177.4 1.5% Operating EBITDA 14.1 21.0 49.3% 14.2 48.3% % margin 7.2% 10.4% 44.8% 7.4% 41.3% Underlying D&A -1.4 -1.3 -8.1% -1.1 11.9% Operating EBIT 12.7 19.7 55.5% 13.0 51.4% Net interest -1.2 -0.7 -41.8% -0.7 6.8% PBT 11.5 19.0 65.7% 12.4 53.8% Tax -2.5 -5.4 118.6% -3.1 72.7% NPATA 9.0 13.6 51.3% 9.2 47.4% dps 4.0 4.5 12.5% 4.5 0.0% Comments:

Significant parts of the PPE business have shown strong resilience in the face of Covid, with community services and industrial hours both up 20% on 1H20, despite the existence of Covid. Nursing was acutely affected during the peak of Covid, however it too is now rebounded strongly with billed hours up 40% on 2H20. The IT business has been the natural laggard, as it’s traditional Melbourne focus limited hiring activity in the 1H. Momentum is returning in 2H21 however. Overall the strength of the upgrade points to the pace of the rebound across the business more broadly, and the various growth markets the company is operating in (disability care, aged care, infrastructure, IT contracting).

Investment view:

• The majority of PPE’s business is exposed to markets with defensive characteristics, yet retain growth opportunities. Even in athose markets that would traditionally be viewed as more cyclical (general staffing), PPE has been able to deliver a strong outcome. We believe this organic growth can continue, while the balance sheet exists to augment this growth via accretive acquisitions.
• As usual, our price target and recommendation are under review.