I agree @thunderhead. The market is betting on some sort of disastrous outcome for PPE in the future, like there is no longer a need for labour hire services, or the already low margins become unmanageable.

I think the downward chart has also been self- perpetuating (don’t try to catch a falling knife!). It’s hard to see any upward trend in the share price being supported by the market without either some great news from the company, or some stability emerging in the legislative environment, but stranger things have happened. It might be safer to dribble in if the the chart turns positive. Then there is also the risk unemployment figures could worsen.

My thesis is based on the fact that there will always be a need for quality, law-abiding Labour Hire service businesses to fill the needs of the seasonal/casual workforce, and as the largest labour hire service business in Australia, PeopleIN is well placed to fill that gap (98% of its employees are contract workers).

The government needs to think carefully about what impacts the new ‘closing the loophole’ bill might have on labour hire businesses fulfilling that role. Government agencies are among PeopleINs clients, and they are aiming to increase services to government to 20% of their revenue.

PPE is definitely not suited to the faint-hearted, or for a large position in any portfolio. I think we’ve reached our maximum allocation at 3.5% IRL, without some uplifting news…or any news for that matter!

At the moment it’s ‘crickets’ out there when it comes to views on PeopleIn and it’s future. While it remains a BUY for most brokers who cover it, I can’t find anyone who’s been talking about it lately. I don’t think they want to draw attention the to their ‘Buy’ call that’s gone pear-shaped. It’s best to say nothing and hope people forget they ever called it a BUY!

I’m not painting a very good picture here. The risks are high. However, very few equity investments are risk free or even low risk. For me the potential upside outweighs the risks, but I could be wrong! :)

Warning: Just think about what else you could be doing with your money!

Very well put @Rick. You've framed it about perfectly - this is a kind of asymmetric bet for a small portion of your portfolio, as the upside is attractive if the worst fears embedded in the price doesn't come to pass. Of course, if they can maintain anything like the current yield on offer, you also get paid to wait.

I guess I have a general aversion to businesses where human capital is the main/key resource or product, as anything human can also be very fickle. I have also learned not to be cavalier in going against the market through costly and painful experience - its verdict has to be respected and carefully considered if you are taking the other side :)

@Rick interesting Rick, good luck with it. i saw simon shields was interested in PPE a while ago. my 2c, admittedly very uneducated and full of behavioural biases, is that i cant recall labour hire scaling well. in the dim past as i recall there have been some disasters, roe always looks good until the end due to low capital required. so i spent about two minutes on it and moved on. That is probably what you are up against. as for brokers (as i have said many times before) discount forecasts more than 1 years out, they dont care about them and have terrible records. you would know more than them i suspect. for PPE i at least like to delude myself that my investments have a moat! just can't see one of size here. could be wrong as usual

Great points in the thread thus far. I am a little more optimistic about PPE’s prospects and believe we are in the trough of uncertainty, which might well be opportunity for select entities.

Apparent draconian legislation always gets watered down. I expect we will see this happen in the first half of 2024 as the BCA mounts a strong campaign.

Labor governments have a habit of offering advantages to the inner circle and market leaders. I think the wife of the 2007 PM did pretty well with a similar style biz back then. Think transport leader Lindsay Fox.

Then there are deeply entrenched views on employment these days. The job for life concept is dead. Ask the tens of thousands of banking staff. Even the Public Service understand and adopt a consultancy approach and ‘buy in’ brains to fit the purpose.

people generally want more job freedom, ask the millennials. Covid introduced yet more freedom with work from home. People like flexibility and diversity. It really is a different world.

Employers too want freedom and the ability to both scale up and down without the yoke of responsibility for staff and their families. I know I felt this when in biz with up to 70 staff. Just love retirement btw, with no staff, no stock, no debt, no worries.

Bottom line: I think the concept of contract staff is attractive to employer and employee. This argument is about the dollar amount per hour. The employer is going to have to pay it one way or another, so it becomes a pass along cost. What they want to avoid is that yoke of responsibility and the likely nightmare of paperwork.

I would expect PPE to become absolute gurus of both the legislation and the paperwork, plus use AI to do so at a much, much lower cost than the average Joe Blow business.

The issue with the legislation is there, but it looks to me like the big picture problem is that during that 2021 boom they were able to buy private companies on 3-4x EBITDA and have the market price those acquisitions at 10-12x EBITDA. The organic growth doesn't exist to justify that sort of multiple the market was paying, rates went up, the economic outlook got gloomier etc etc and so inevitably it compressed and the arb opportunity closed.

Between FY20 and FY23 they acquired $24.3m in EBITDA. So I guess the organic growth over that period was about 3%-4% at the EBITDA level – margins went backwards so no scaling despite 3xing revenue.

At two percent NPAT margins (yes, there is a lot of acquired intangibles' amortisation in there) it won't take much to make things look not so good if unemployment starts going up. And don't forget they have ~$85m in debt (tightening up days debtors looks like an attempt to wind back some of the WC investment given the rising cost of debt) and potentially $20m in earn outs that also need to be paid out.

I'd want to see where things land or at least see some improvement in organic growth. The ASX is littered with the carcasses of roll-ups that came back to earth.