human resorces ....the place to be (imho)...load up on NCH !
Macleod seeks silver lining from listing Author: James Hall Date: 14/03/2005 Words: 775 Source: AFR Publication: Australian Financial Review Section: Companies and Markets Page: 12
Acquisitive Chandler Macleod says bigger is better in human resources. James Hall reports. Chandler Macleod Group will look at potential acquisitions in the fragmented human resources sector once it hits the Australian Stock Exchange, which will follow a shareholder vote to approve its backdoor listing in May. The recruitment and consultancy firm last week said it would carry out a reverse takeover of listed former credit management company NCML Holdings and a merger with smaller unlisted human resources firm Forstaff. NCML's shares shot to 27.5 ? when the news broke, after languishing below 20 ? since the year began, barely trading at all. The new entity, Chandler Macleod Ltd, should become the second-largest listed recruitment company in Australia behind the $270 million Skilled Group. Skilled commands about 8 per cent of the market, and Chandler Macleod will have about 7 per cent on listing. But managing director Stephen Cartwright says he wants at least 15 per cent in the near term. This would represent turnover of $1.5 billion, which means buying other companies. Cartwright says listed companies in his industry must either scale up or become irrelevant as more clients seek to rein in swelling HR costs by dealing with one large supplier. "If you look at trends overseas, consolidation has happened and it's a natural consequence of clients becoming more educated and more demanding in terms of service consistency, your ability to provide comprehensive management reports and link up with their IT systems." Cartwright points to logistics group Toll Holdings as a role model. "Before Toll got serious, you had companies that had grown as a result of a logistics boom. Toll saw there needed to be consolidation but took its time. We're going to go exactly the same way. "We're not going to rush at it because there's no screaming hurry. I've learnt from other sectors that you have to take it slow and steady." One target could be $39 million white-collar recruiter Hamilton James & Bruce, in which Chandler Macleod Group's major shareholder, the Plummer family, is also a shareholder. Analysts say the human resources sector must mature if it is to extend profits beyond this phase of the demand cycle and avoid being usurped by global giants such as Adecco. Paradice Cooper Investors portfolio manager Matthew Riordan says institutions have been unable to take part in the sector's recent growth because its companies are relatively small. So he welcomes Chandler Macleod's listing and the much-anticipated float of online job agency Seek. "A lot of the existing companies are too small to invest in," he says. "These new listings give the market opportunities to participate in what's been a pretty buoyant sector." Another problem is that Skilled, the only listed human resources firm that gets mainstream broker coverage, is unpopular with analysts. UBS emerging companies analyst Alex Mees has long held a "reduce" rating on the stock, while Citigroup Smith Barney recently highlighted the high degree of risk it carried. Chandler Macleod and Seek are not the only candidates for listing. Pengana, the private equity firm backed by Liberal MP Malcolm Turnbull, says it is rolling up several smaller recruitment agencies that it may eventually list, while micro-caps PeopleBank and Challenge Recruitment also plan to list. Chandler Macleod's market capitalisation of $119 million will produce a price to projected earnings multiple of just 4.6 times. But the company will have only $7 million cash at listing, as the all-paper reverse takeover will not generate any capital. Under the proposal, NCML plans to consolidate its shares at a ratio of roughly five to one, before paying $119 million in $1 shares for Chandler Macleod and Forstaff. As NCML's market cap is only $10 million, it will cover the shortfall by issuing new $1 shares. So it's likely that the new company will have to engage in some kind of capital raising soon, unless it plans to dilute the value of investors' holdings with another all-paper takeover. JML Australia chief executive Jon Leighton, whose corporate advisory firm looked after the float of Hamilton James & Bruce in 2000, says nothing will stop the Chandler Macleod listing going ahead. The general meeting to approve the deal seems a formality: the companies are tightly held and NCML has been in a state of inertia since the sale of its credit management business. Other potential consolidators in the industry include Integrated Group, Candle Australia and Talent2 International. Smaller firms Ross Human Directions, Catalyst Recruitment Systems and Ambition Group are considered unlikely buyers.
