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Stock Insights

Stock Spotlight: People Infrastructure (PPE.ASX)

1/5/2019

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Ron Shamgar, Head of Australian Equities and Portfolio Manager of the Small Cap Income and All Cap portfolios, examines one of his favourite holdings. A stock which he believes has strong tailwinds and is likely to be in an even better position following the election. This week we take a look at company held in both the TAMIM Small Cap Income and the All Cap portfolios. We believe this stock offers a substantial growth opportunity and should benefit from the proposed increase in health sector funding if a Labor government gets elected later this month.
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People Infrastructure (PPE.ASX) is a workforce management company operating across Health, IT, social care and general labour hire. PPE’s strategy is to drive growth via acquisitions and has continued to outperform since listing. 

Nearly 50% of PPE’s revenue is derived from the health and social services sector and another 35% from general labour hire. IT services comprise another 10% of their revenue. Important to note is the fact that the health care market is a $2.65B sector and is forecast to grow at 5% p.a.. The labour hire division is benefiting from civil infrastructure and mining project spending. We don’t foresee any impediments to these tailwinds in the immediate future.

PPE's Profit by Industry FY19H1
Source: Company filings
PPE listed eighteen months ago and has grown revenue from $192M in FY17 to a FY19 forecast of $280M. During that period EBITDA has almost doubled from $10M to a $19M forecast for this year. This growth, achieved partly through acquisitions and organic initiatives, and has made PPE the largest nursing agency in Sydney and the largest workforce manager in the disability sector nationally. The company is led by Managing Director Declan Sherman who, as the largest shareholder, owns 12.5% of the company.
PPE Consistently Growing Shareholder Returns
Source: Company filings
PPE has made four acquisitions since listing and they have indicated that they intend to continue to consolidate the sector. During March this year PPE acquired Victorian Nurse Specialists, a leading nursing agency in Melbourne, for $2.5M. In addition, PPE acquired the remaining part of Recon Solutions and Project Partners for $2.8M. Both deals will contribute an additional $1.1M EBITDA.

PPE is currently forecast to earn 19 cents cash EPS for FY19. The business generates strong cash flows and is not capital intensive. This allows management to pay dividends and reinvest into further acquisitions with the addition of debt. The balance sheet has ample capacity to borrow for any further deals should that be deemed necessary. The dividend yield this year is forecast at 9 cents or a 3.6% fully franked yield. We estimate earnings will grow at ~15% p.a. over the next couple of years with the company generating ROE in the low 30% range. Earnings growth could accelerate if larger deals are done. So far PPE have been prudent in their acquisition approach.

With Labor currently the favourite to get elected this month (Sportsbet currently has them paying $1.30 against $3.50 for the Coalition) we see further tailwinds with the proposed increase in funding for the healthcare sector and female dominated professional roles such as nursing. As the leading provider to the health sector work force, PPE should benefit.

We value PPE in excess of $3.00 per share. Key catalysts for this year are further acquisitions flagged by management, August results beating analyst estimates and further market awareness as the market cap increases to over $150M.
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​The information provided on this website should not be considered financial or investment advice and is general information intended only for wholesale clients ( as defined in the Corporations Act). If you are not a wholesale client, you should exit the website. The content has been prepared without taking into account your personal objectives, financial situations or needs. You should seek personal financial advice before making any financial or investment decisions. Where the website refers to a particular financial product, you should obtain a copy of the relevant product services guide or offer document for wholesale investors before making any decision in relation to the product. Investment returns are not guaranteed as all investments carry some risk. The value of an investment may rise or fall with the changes in the market. Past performance is no guarantee of future performance. This statement relates to any claims made regarding past performance of any Tamim (or associated companies) products. Tamim does not guarantee the accuracy of any information in this website, including information provided by third parties. Information can change without notice and Tamim will endeavour to update this website as soon as practicable after changes. Tamim Funds Management Pty Limited and CTSP Funds Management Pty Ltd trading as Tamim Asset Management and its related entities do not accept responsibility for any inaccuracy or any actions taken in reliance upon this advice. All information provided on this website is correct at the time of writing and is subject to change due to changes in legislation. Please contact Tamim if you wish to confirm the currency of any information on the website.  

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