Consensus community valuation
Short term Bull
Chart Update Fri 19th July
Daily Stochastic is resetting with the longer term (Yellow Line) remaining up high, just after finishing a small ABC down this morning, so looking for a jump up for w5. If it makes it easily to the 200% then will probably go little higher to touch the 200. So thinking this should happen Mon,Tues or Wed next week. Target is anywhere from 1.06 - 1.13, there is risk to this one however as I think the company is struggling at moment though Im digging myself out of a hole I got myself in some time back.
After reading the scoops on the corruption riddled construction component of the CFMEU, you’d have to wonder if this has been “Buiding Bad” headwinds for Peoplein over time. From the AFR this morning:
“A company run by brothers known to police and championed by the CFMEU has ballooned into one of NSW’s biggest labour hire operations, and construction giant John Holland Group has agreed to make it a preferred supplier.
With the union’s backing, the company, Zenith Recruitment, has won lucrative taxpayer-funded contracts. A leaked internal document suggests the John Holland Group struck a secret memorandum of understanding last October with the union to only source labour hire from four CFMEU-preferred companies, including Zenith, on the taxpayer-funded $1.7 billion M7-M12 project.”
I have no information that links to the impact this may have had on PeopleIn’s labour hire business in the construction industry, but this has surely not helped. Peoplein derives 31% of their EBITDA from industrial.
I found this write up about PeopleIN by Tristan at Hurdle Rate published a month ago (27th October 2023). I thought it was a well-balanced analysis, weighing up the upside and the risks.
It’s worth noting that at that time of writing PPE was trading at $1.58 per share. Since then it has fallen a further 13% to a fresh 3 year low of $1.35 on Thursday last week. It’s hard to know if this is the bottom because it hasn’t been tested for market support more than once.
If you like Tristan’s analysis you can sign up to ‘Hurdle Rate’ on this link:
https://hurdlerate.substack.com/p/peoplein-asxppe
Peoplein provides staffing, business and operational services across Australia including workforce management, recruiting, onboarding, contracting, rostering, timesheet management, payroll, and workplace health and safety. More specifically it predominately provides contract labour to its clients across three key verticals: healthcare and community, professional services, and industrial & specialist services. It employs more than 850 team members who have helped to provide employment to over 34,500 people from a candidate pool more than 55,000 people and 4,200 client businesses.
Long-time readers of the Hurdle Rate Substack would recognise this business from a One Page Stock Pitch I did back in February. At the time the business was more than double the current price. In the time since then the business concluded its strategic review with the conclusion to continue to pursue it’s current strategy and Declan Sherman, the group’s founder and head of acquisitions had stepped down from the company (It is notable that Declan did own some ~7% of the company up until FY2022 where he transferred out 4m shares to an unknown holder. He remains a shareholder in some 2.1m shares or 2.32% of the outstanding shares. Other shareholders of note include Perennial Value Management with 9.24% and QVG Capital with 5.21%. Acquisition vendors Andrew Brosnan and Mark Reiken also both own 6.14% respectively.
Circling back on the stock pitch I did previously, I did discuss the risk of labour hire being a tailwind for the fundamentals of the business from it’s inception in 2015 to date. From August 2014 through to August 2022 the % of labour hire workers working full-time hours increased from 73.9% to 81.2% of all labour hire workers. Looking back at this, I do not think this was a particularly useful statistic to bring to the forefront. Whilst it is true that with more full-time employees in the labour-hire workforce would lead to more billed hours which flow through something like Peoplein, there is much more to it.
Either way, the group generates the vast majority of its revenue through invoicing the firms who are being provided labour, also known as contract hire revenue. There is also a small amount of revenue and profits coming from recruitment in general, being the permanent placement of individuals along with project based managed services. The key variable in the top line growth of the firm is billable hours, much like an accounting or law firm running on a timesheet model as well. This requires an incrementally larger talent pool and utilisation of said talent pool. The group has grown this pool predominately through both acquisition and organic growth in recent years. I feel that in years to come, provided there is no catastrophic change to labour hire, that the group can generate additional revenue through the average wage growth of this pool in addition to any volume growth, making this a somewhat inflation protected revenue stream.
The issue is that the number of businesses seeking labour hire in general would decrease in difficult economic environments given that temp staffing is typically more expensive than permanent. This is certainly the case in recent months with many labour hire companies collapsing due to fierce competition for candidates. This article goes on the discuss that construction, hospitality & retail are showing the greatest signs of distress, which if you refer to the picture above, accounts for some ~44% of the Peoplein business (if we include food services as well). This could very well be what the market is concerned about particularly, but ultimately my uncertainty is quite perplexing with Peoplein as the company themselves appear to be quite optimistic in general, shaking off any looming distress soon.
Across the 3 divisions the billable hours are significantly greater in the industrial division, with it being ~10x the health and community and ~18x the professional services hours. However, the rate and margin at which the latter are realised at significantly greater rates with revenue and EBITDA per billable hour in Industrial & Specialist being $43.63 & $2.10, Health & community being $71.71 & $4.60, and Professional Services being $151.27 & $13.60. Therefore, the areas where Australia are seeing the most impact, also happen to be the lowest rate and margin parts of the Peoplein business.
Same Job, Same Pay laws are also prevalent in labour hire, however, predominately in mining, where there is mass exploitation of contract labour at rates below those of permanent staffing, despite having entitlements to boot including permanency. However, as can be read in this article areas including professional services and carers are typically paid greater rates through an agency than not, therefore is likely to avoid most regulatory drama around labour loop holes and the pending fair work legislation.
All of this points me towards thinking that the share price decline in Peoplein ‘feels’ overdone. And I know that is a dangerous feeling to have, so I am thinking about this very carefully and have sized this accordingly given my uncertainty. In a best-case scenario, Peoplein sees no real impact, we benefit from a ~13% dividend yield, high teens growth rates in earnings per share and quite a hockey stick in the valuation multiple. I struggle to see much downside, although put a gun to my head and I could envision significant impairments in its food business, losing some ~30% of its profits perhaps and being valued at a high single digit multiple of earnings with perhaps struggles to grow soon. The group has historically grown roughly half/half through organic/inorganic. It would be good to see further focus on resilient areas of labour demand such as the PALM scheme, the FIP business and Halcyon Knight business which all see tailwinds or structural shortage in labour.
ENDS
Five months ago I posted a straw here on PeopleIn titled ‘Devil is in the Detail’. In conclusion I said “Until there is more certainty known about how much of PeopleIN’s business will be impacted by SJSP (now referred to as ‘Closing the Loopholes’ Bill) I won’t be adding any more shares . Back then the shares were trading at $2.20.
Well, to contradict my own advice I’ve been adding shares recently. Why? I think the market has overreacted and has priced in the worst case scenario. Shares have been trading as low as $1.34 over the last week, or 7x FY23 earnings. That might be good for an average business, but I think this a better than average business.
It is very unusual to see the share price of a business fall 70% from its peak while the fundamentals have been excellent and have continued to improve. What’s more analysts are forecasting future earnings growth of 14% to 15% per year. Although, I don’t think the analysts are factoring in the possible impacts of the ‘Closing the Loopholes’ bill if it does get voted in. I think PPE will get at least a year without needing to worry about impacts of the bill (if the Bill does get voted in without changes).
Another thing analysts might not be thinking about is the possibility of higher unemployment, which would be a drag on PPEs business.
The three year share price has been an absolute disaster!
It’s when we look start looking at the financials it all starts to get very confusing,
That’s impressive growth all round, yet the share price is close to 5 year lows. The historical ROE is also respectable averaging over 12% for six years. ROE should continue above 15% if the analyst consensus forecast prove to be correct.
Source: Commsec
Analysts are forecasting FY26 EPS of 28 cps. Even at a multiple of 7x earnings that puts the FY26 share price at c. $2 per share. It’s also worth noting that PPE is trading under book value of $1.54.
Source: Simply Wall Street (24/11/23).
The margins for the business are low, Gross Margin 7.6% and Net Margin a slim 1.6%. You would expect low margins from a business that pays a workforce (94% contractors) and hires them out through labour hire services.
For what it’s worth management aspire to an EBITDA margin of +7%.
What about debt? PeopleIN has managed to accumulate some debt with acquisitions, including FIP. They paid down some debt in FY23 resulting in a net debt on equity of 28.5% (after taking away the $39 million in cash), which is OK. PPEs debt is also well covered by operating cashflow (75.3%).
Source: Simply Wall Street
What about dividends? If you like a good dividend PPE is hard to beat. Based on the FY23 dividend of 14cps for FY23, at the current price this equates to a 10% fully franked dividend which should be achievable for FY24 at a 70% payout ratio. That’s 14% grossed up with 100% franking credits.
PeopleIn have a diversified portfolio across sectors and geographies:
For PeopleINs labour hire services, most of these sectors should remain unaffected by the proposed bill. It’s the sectors where labour hire workers are getting paid less than permanent industry workers where the business model will be tested. For instance I believe Health, Government & Education, Technology, professional services, and finance & insurance should remain mostly unaffected. From what I’ve read there is likely to be some impact to the Food services business including PeopleINs FIP business where it is alleged by unions that meat worker contractors are getting paid less than permanent employees. I believe this might also be the case for mining contractors. I’m not across the impact to other sectors (if any), as it is all still evolving. However, a large portion of the business should be unaffected.
In conclusion, Labour Hire is a much needed industry, and it will continue to be needed into the future. There will always be a need for seasonal and casual workers across most industries. This is not a business model that is on the way out. However, the new ‘closing the loopholes’ bill will certainly shake things up for the industry, and will more than likely shake out all the ‘cowboys’ . If the ‘closing the loopholes’ bill is passed in full this is likely to impact parts of the PeopleIN business model, however I think the market is now pricing in the worst case scenario and there is likely to be significant upside to the share price from current levels. As a sweetener there’s also likely to be a fat 9% to 10% fully franked dividend in FY24.
Are there significant risks? Yes! Are good future returns possible? Yes! At the current share price of $1.40 I think total returns of more than 20% per year are possible over the next 5 years.
Disc: Held IRL (3.5%) SM (3%)
The uncertainty around what the proposed ‘Same Job, Same Pay’ (SJSP) legislation means to labour hire service businesses has put PeopleIN’s share price into a tailspin, down 41% since August last year.
PeopleIN 12 month share price (Source Simply Wall Street).
According to an article in the AFR yesterday - “sectors that use labour hire the most – including administration, tech and carers – are likely to be largely unaffected by the Albanese government’s “same job, same pay” laws due to high pay.
Recruitment, Consulting and Staffing Association (RCSA) chief executive Charles Cameron said “The reality is that the sectors where there are any issues, other than in potentially black coal mining, are very, very limited.”
When you look at the diversity and composition of PeopleIN’s labour hire services you would have to wonder if the market has over reacted to the proposed SJSP legislation.
Source: Investor Presentation, 1H23 Results, 17/02/23.
There are definitely sectors within PeopleINs business (including the FIP Group), that are likely to be impacted, according to Australian Meat Industry Employees Union federal secretary Matt Journeaux comments in the AFR:
He said “the union had been unable to get meat giants to agree to the requirements in agreements despite concerns some labour hire staff were paid less than direct workers.”
But he anticipated the new laws would shake up the business models of major labour hire firms in the industry, including FIP Group, part of the ASX-listed PeopleIN.
“I think you will see more host employers engaging workers directly rather than through labour hire,” he said.
“Labour hire flourished the way it is because its premium is as high as it is. At the moment, that premium is being absorbed by the differential between local and labour hire rates – once that’s assimilated, that premium will be reloaded on top.”
PeopleIN also gets most of its revenue from labour hire in nursing and aged care. However, nursing union sources said most agency staff were paid more than the direct workforce and some agreements already limit their use to unplanned absences.
PeopleIN did not respond to requests for comment.
I’m hoping that PeopleIN will share what they know with shareholders soon. I sent an email to the CEO recently looking for some insight. In the reply from investor relations they said they were in discussions with industry and the government over SJSP.
Until there is more certainty known about how much of PeopleIN’s business will be impacted by SJSP I won’t be adding any more shares. I think it’s a hold for now until the legislation beds down. The devil is in the detail!
Disc: Held IRL 2%
Full AFR article below:
Tech, admin, carers may avoid brunt of ‘same job, same pay’ laws - AFR, 15 June 2023
Some of the sectors that use labour hire the most – including administration, tech and carers – are likely to be largely unaffected by the Albanese government’s “same job, same pay” laws due to high pay.
However, business has raised concerns that they could still face large compliance costs if Labor fails to narrow broadly framed eligibility tests for the laws, expected to be introduced to parliament in the coming months.
Data compiled by Australian Industry Group and drawn from the Australian Bureau of Statistics shows the largest employer of labour hire is administrative and support services, where agency workers make up 5.1 per cent of the workforce.
ICT professionals are the second most popular occupation, totalling some 12,000 of the 145,000 estimated labour hire workers, while carers and aides ranked fourth with more than 10,000 agency staff.
Recruitment, Consulting and Staffing Association (RCSA) chief executive Charles Cameron said agency staff in these sectors were almost always paid more than the direct workforce and few host companies had union agreements.
“The reality is that the sectors where there are any issues, other than in potentially black coal mining, are very, very limited,” he said.
“If you accept government statements that same job, same pay will apply only to clients with EBAs [enterprise bargaining agreements], we think in administrative services and the professional contract segment there are very few EBAs anyway, so it will have very little impact.”
Government consultation papers frame the laws broadly. However, Workplace Relations Minister Tony Burke has said in recent interviews he wants the laws to target worksites with EAs to stop employers using labour hire to undercut rates in union deals.
Professionals Australia chief executive Jill McCabe, representing tech workers, said while the union fully supported the legislation, “the structure and organisation of work in the ICT sector means that it is difficult to make direct comparisons with labour hire practices in other sectors of the economy”.
“Many IT companies provide IT systems and services to other organisations,” she said. “While these companies may contract out their employees to provide IT services to other companies, the employees remain directly employed by the IT company, rather than being engaged through labour hire arrangements.”
She said same job, same pay provisions “will not apply in circumstances where IT contractors are direct employees of other companies, where an EA doesn’t exist and where there is no comparable job within the company which is engaging the contractor”.
Confidential discussion
Business groups and unions will meet on Friday to confidentially discuss details of the bill with Mr Burke and department officials.
The meeting came as eight major employer groups – including the Business Council of Australia, the Minerals Council of Australia and the Australian Chamber of Commerce and Industry – issued a joint statement late on Thursday staying they stood united in “broad opposition” to the laws as they “threaten jobs and investment and undermine productivity”.
One of the key items up for a consideration is a multi-factor test – proposed by the Australian Resources and Energy Employer Association – to determine what labour hire or agencies will be covered by the laws and exempt specialist service contractors.
However, the MCA and the RCSA are opposed to the test and want a clear carve-out.
Mr Cameron said he feared the multi-factor test would “just create more vagueness and won’t draw a line of who’s in or who’s out”.
“We’re very concerned about a very fluid definition,” he said. “It’s absolutely critical we have an easy-to-understand provision of who’s in and who’s out because you can’t have a scenario where parties don’t know, or have to get a barrister’s opinion to find out if you’re covered.”
The sector that will be most affected is mining, with the mining union spearheading the reform after litigating against labour hire deals that undercut union rates. About 3 per cent of the sector’s workforce are labour hire, according to the Ai Group data, while BHP has set up its own labour hire subsidiary.
The biggest occupation using labour hire is warehouse workers, making up 16,000 workers. But the sector is unlikely to experience much change given the United Workers Union has ensured most distribution centres already have same job, same pay clauses in their agreements, including at major retailers Coles and Woolworths.
UWU national secretary Tim Kennedy said, “We have always negotiated hard in our collective agreements with employers to remove this loophole with great success, and it has not affected competitiveness or productivity.”
Process workers
Factory process workers are in the top three occupations, engaging 11,000 workers through labour hire.
Some food processors, such as Arnotts Biscuits, have already signed off on same job, same pay provisions in deals with the UWU, but the meat industry has avoided them.
Australian Meat Industry Employees Union federal secretary Matt Journeaux said the union had been unable to get meat giants to agree to the requirements in agreements despite concerns some labour hire staff were paid less than direct workers.
But he anticipated the new laws would shake up the business models of major labour hire firms in the industry, including FIP Group, part of the ASX-listed PeopleIN.
“I think you will see more host employers engaging workers directly rather than through labour hire,” he said.
“Labour hire flourished the way it is because its premium is as high as it is. At the moment, that premium is being absorbed by the differential between local and labour hire rates – once that’s assimilated, that premium will be reloaded on top.”
PeopleIN also gets most of its revenue from labour hire in nursing and aged care. However, nursing union sources said most agency staff were paid more than the direct workforce and some agreements already limit their use to unplanned absences.
PeopleIN did not respond to requests for comment.
The impacts of the proposed ‘Same Job Same Pay’ (SJSP) legislation is putting some doubt around the future of labour hire businesses like PeopleIn. PeopleIn’s share price has fallen over 10% on the back of record FY2023 earnings guidance announced last week, however the lack lustre share price over the last 6 months is likely due to SJSP bubbling away in the background. Investors are now more concerned about SJSP and the uncertainty it creates for PeopleIn’s businesses model than the current performance of the business.
However, the proposed legislation is not going to sail through without resistance. Business has united to fight against the ‘Same Job SamePay’ legislation because they believe it is unfair. From the AFR this morning:
The entire business community, including miners and farmers, has declared war on the Albanese government over its proposed labour hire laws, arguing the changes will remove reward for effort and ultimately stifle wage and business growth.
In the biggest joint campaign of its type, eight peak organisations have launched a multimillion-dollar campaign – which they vow will run indefinitely if need be – and which mocks the government’s “simplistic” sales pitch that cracking down on the use of labour hire was about “same job, same pay”.
Business Groups are saying:
”the proposed laws go beyond so-called cowboy labour hire and will not only stifle its legitimate use, but also hit subcontractors and independent contractors.
“The so-called ‘same job, same pay’ proposal does not mean equal pay for men and women. It does not speak of fairness and justice, as its name falsely represents,” the groups said in a joint statement.
“It means by law, employers will have to pay workers with little knowledge or experience exactly the same as workers with decades of knowledge and experience.
Images from the ad campaign fighting Labor’s IR agenda.
“It means by law, you cannot earn better pay by working harder or longer, if your colleague does not share your ambition or work ethic.”
They also contend the laws will deny companies the flexibility needed to enlist labour when needed on a temporary basis, such as during a ramp-up of operations.”
Tony Mahar from the National Farmers Federation (NFF) said:
“Same Job, Same Pay would be a red tape minefield for farmers.
“Most farms are small, family-run businesses that don’t have lawyers or an HR department to turn to.
“It would spell chaos and confusion at peak periods like harvest where contractor numbers on farms can surge 500 per cent for just a few weeks.
“This isn’t about fairness. We can’t pretend every temporary contractor has the same value as a longstanding employee. We should be allowed to reward loyalty and experience.”
What does all this mean for PeopleIn?
SJSP is creating a lot of uncertainty for labour hire businesses. Labour hire is a much needed service for industries with large seasonal variations in labour requirements, eg, farming where labour requirements vary by 500%.
I don’t think the need for labour hire services is going away. However, the red tape and certainty associated with the new legislation will most likely increase costs and reduce margins for labour hire businesses.
The best case scenario for labour hire service is that the SJSP does not see the light of day, and the current ‘shakeup’ roots out the few ‘cowboys’ in the sector that are tarnishing the reputation of a necessary and legitimate industry.
Uncertainty around SJSP and it’s impacts is likely to continue for months, I don’t think there is any urgency to buy PeopleIn right now, even though it seems on the surface to be a wonderful business at a very cheap share price. It’s a hold for me while business groups fight it out with the unions and the Australian Government. Hopefully a fair and sensible solution is reached that supports all sectors.
Held: IRL (2%)
Will PeopleIN be the same business if the Australian Government pushes forward with the ‘Same Job, Same Pay’ legislation later this year?
PeopleIN (PPE) shares have traded up to 10% lower despite announcing record revenue and EBITDA guidance for FY2023 yesterday.
The good 2023 result has been lost on investors as they contemplate the future of labour hire services under the proposed new legislation.
It’s hard to get your head around the complexity of it, let alone what impacts it might have for labour hire services like PPE. I found an article in the AFR from December 2022 where a number of people involved in Labour Hire services expressed their views about what impact it might have to their business. It seems there is a lot of confusion and conflicting views amongst people who are in the business. Some saying it will increase costs to meet compliance with the new laws, some say it is an “existential threat”. One recruiting agency says that it’s the 2% of ‘cowboys’ that have spoilt it for everyone, and they look forward to working with the unions in the new reforms.
So after my initial research I’m left just as confused as ever about the potential impacts to PeopleIN.
The hefty hidden price tag of same job, same pay
Excerpts from the AFR, 22 December, 2033
“Matt Sampson, the head of Aspect Personnel which supplies thousands of highly paid engineers and architects to construction projects, is concerned about the Albanese government’s proposed labour hire reforms expected next year.
But it’s not because of higher wages. He anticipates the reforms could cost his business hundreds of thousands of dollars just to figure out how they would apply to the more than 2000 jobs he supplies each year.
He says he’s flummoxed about what the reforms are trying to solve as wages are already high due to a tight labour market.
“I’ve run this business for 15 years and had tens of thousands of conversations with employers and employees, and it’s never once crossed my radar as being an issue,” he said.
The Albanese government’s multi-employer bargaining laws – passed in December and allowing strikes and pay deals across different businesses – promised to challenge fundamental ideas of competition in the labour market.
But it’s the government’s next tranche of IR laws that could cement the revolution. The headline reform is the potentially game-changing “same job, same pay” labour hire laws.
While the scope and detail is still being hotly debated, in essence the reform will require employers to pay labour hire workers the same pay as direct employees doing the same job.
The principle is inherently appealing in its perceived fairness. But businesses are concerned it could constrain employment at a time when firms are relying on labour hire firms to source workers in a historically tight labour market.
Some labour hire owners have described the laws as an “existential threat”. Others disagree but fear the requirements will be a “compliance bomb” that will stifle the sector.”
Recruitment, Consulting & Staffing Association chief executive Charles Cameron, representing professional service providers, says the laws are a potential “compliance bomb” that would stifle labour hire.
“We are talking about a massive bomb – nuclear size issues around non-compliance and not because anybody doesn’t take compliance seriously. It’s simply because it becomes unworkable,” he says.
“So this is a great example of when really nice, warm, cuddly concepts become huge problems in practice, and it makes it an unattractive place to do business.”
Aspect Personnel’s Sampson estimates it would take his firm about 90 minutes to manage compliance for each worker.
“For every one of them – and we registered 2600 jobs in the last 12 months – that’s looking north of $300,000 for my business, which is a 19 person, privately owned business, experiencing the same rising business costs of everyone. That’s not just for us, ourselves, but also for our clients.”
Even if the eventual reform is simplified, business argues it is steeped in the industrial relations ideology of decades past.
Workplace Relations Minister Tony Burke has acknowledged there are legitimate uses for labour hire but points out some companies are “deliberately using cowboy labour hire firms that exploit casual workers in order to undermine job security and undercut wages”.
“Slade Recruitment executive director Anita Ziemer, whose firm specialises in supplying executives and teachers, complains that “2 per cent [of labour hire firms in the sector] spoil it for the 98 per cent [doing the right thing]“.
“I’m all for the unions and they’ve got us many of the benefits we have now,” she says.
“But I’d love to work with unions and say the world is changing so rapidly – how can unions best add value and enhance the future of work? That’s what they should be focusing on.
“This is almost an old-economy way of looking at capital and labour.”
I like every slide in the 1HFY23 Presentation, particularly the one that shows ROE increasing to 25.9%. It’s no wonder the CEO has been a little frustrated with the share price lately. I put in a pre-open bid, but it looks like it will be a strong start to the day!
Disc: Held IRL
This morning (3/6/22) PeopleIN announced its 100% acquisition of FIP, one of the largest suppliers of workforce to Australia’s food sector and employs a significant number of these workers through the Pacific Australia Labour Mobility (PALM) Scheme
I only just caught the end of the webinar this morning. Going on the Q&A session, the analysts seemed to be positive about the acquisition which should contribute double digit growth to the combined business FY23.
Disc: Held IRL
PEOPLEIN TO ACQUIRE SHARES IN FOOD INDUSTRY PEOPLE, A LEADING PALM WORKFORCE SOLUTIONS BUSINESS
• Highly complementary workforce solutions business specialising in staffing solutions to the food and agricultural sector at scale (~4,500 workers)
• Address critical labour shortages in Australia through the attraction, onshoring and employment at scale of workers from the Pacific Islands, under the Pacific Australia Labour Mobility (PALM) Scheme
• Expected annualised proforma EBITDA contribution of ~$9.5m and earnings per share accretion of approximately +15% in FY23
• Upfront consideration of $45m ($35m cash and $10m PPE shares1) representing a multiple of 4.7x pro forma EBITDA for FY23. A further $25m may be payable as deferred cash consideration over two tranches based on the business achieving agreed growth in EBITDA for FY23 FY24
• Management team to remain with the business and invested in future growth.
FIP is a workforce solutions business that is one of the largest providers of staff to the food sector in Australia. It employs a significant number of these workers under the PALM Scheme.
PeopleIN’s Chief Executive Officer, Mr. Ross Thompson said “PeopleIN has acquired an at scale international recruitment engine room to be leveraged by our defensive growth sectors, including food services, healthcare and aged care. Our investment via the PALM Scheme will help solve the significant employee shortages faced by our clients, and the broader market, by bringing in workforces at scale.”
FIP was established in 2006 and has grown to be a national leader in workforce solutions under the PALM Scheme, with ~4,500 people in work. FIP workers are employed on a fixed term basis for the duration of their visas (typically 3 – 4 years) and are assigned directly to a host employer for the duration of their stay. As part of its responsibilities as an employer, FIP provides a dedicated pastoral care program which includes providing workers with access to accommodation, transport, healthcare and connecting workers with local community services, churches and sporting clubs. The food supply chain is essential and despite the challenges experienced during the COVID-19 pandemic, global food supply chains demonstrated remarkable resilience in the face of disruptions. Furthermore, the outlook for the Australian food sector is strong due to new and ongoing free trade agreements driving growth in exports. In addition, economic recovery from the COVID-19 pandemic is forecast to boost demand for Australian food from international markets over the next five years.
The PALM Scheme helps fill labour gaps in rural and regional Australia by offering approved employers access to a pool of reliable, productive workers where there are not enough local workers available. The Scheme allows Pacific and Timorese workers to take up jobs in Australia, develop their skills and send income home to support their families and communities. In April 2022, there were ~23,000 Pacific Islander workers in Australia, up from ~14,760 in 2021 and ~9,222 in 2020.
Furthermore, at the beginning of FY22 DFAT6 announced that there were 55,000 work-ready Pacific and Timorese people available to commence work on Australian soil, demonstrating the obtainable expansion opportunities through the FIP acquisition. The newly elected Labor Government has outlined several policies to increase the uptake and expansion of the PALM Scheme, indicating continued support for the Scheme. Policies include covering workers’ international and domestic travel costs upfront and adding agriculture as a third visa stream.
The consideration payable for FIP is on a cash free, debt free basis. Food Industry People Group is expected to contribute ~$9.5m in EBITDA in FY23 and generate pro forma forecast earnings per share accretion of +15% in FY23. The cash component of the acquisition will be debt funded from PeopleIN’s existing lender and the net debt post acquisition will be approximately 1.1x net debt to pro forma FY22 EBITDA.
Food Industry People Group CEO Brad Seagrott will join the PeopleIN executive leadership team and continue in his current role as CEO of Food Industry People Group. Together PeopleIN and FIP will work to accelerate growth through sharing customers and grow geographically. The transaction is subject to conditions and is expected to complete by mid- June.
The acquisition of FIP increases PeopleIN’s participation in the food sector and cements our position as the largest ASX-listed recruitment and staffing company in Australia. It comes off the back of a strong five-year period of growth for PeopleIN, which has seen the company generate significant shareholder value. Over the last 5 years, the company has recorded an earnings per share compound annual growth rate of 27%. PeopleIN focuses on providing staffing services to those parts of the Australian economy that have significant and growing demand for employees including health and community care, technology, accounting, childcare, food and mining, amongst others.