Eight Capital launches coverage of HIRE Technologies with a “Buy” rating

Toronto-headquartered HIRE was incorporated in June 2017 but changed its name from Bay Talent Group to HIRE Technologies in April of last year and restructured its leadership, with HIRE starting to trade on the TSX Venture in December 2019. The company has a number of staffing, HR consulting and IT assets, aiming to develop cross-selling opportunities while scaling its businesses and pursuing its M&A pipeline.

Through its decentralized partnership model, HIRE says it emphasizes brand identity and independence of its various businesses.

Over the second half of 2020, HIRE closed on three acquisitions, effectively growing its internal employees by 50 per cent, while also completing two rounds of private placement for a total of $6.5 million.

More recently, HIRE announced on April 1 the acquisition of Pulsify, a cloud-based people management platform based in Boston, providing HIRE with a path into the US market along with expansion into the HR SaaS Solutions space.

In his coverage initiation, Sgro spoke of the staffing market in North America, saying it was estimated in the US alone at US$119.4 billion in 2020, with projections to grow to US$136.4 billion this year, while the Canadian market is pegged at around $10 billion.

It’s a fragmented market, as well, with Sgro saying no single firm accounts for more than five per cent of the global staffing market. Randstad, Adecco and ManpowerGroup are the three largest with between four and five-per-cent market share each, according to 2019 data, while beyond the Top Ten, all remaining companies have less than one per cent market share, with the world’s 100 largest firms accounting for only 45 per cent of total revenue.

“The American Staffing Association estimates ~25,000 staffing and recruiting companies in the US; we believe as many as ~30,000 across North America,” Sgro wrote.

“HIRE has closed five acquisitions since going public in December 2019. Management intends on maintaining this pace through 2021, rolling up the space and layering on the right technologies and human services companies to broaden the business,” he said.

Sgro said HIRE is focusing on revenue and cost synergy opportunities through its acquisitions.

“While HIRE operates a decentralized model, the organization leverages its expanded network of human capital across businesses to meet client needs. Subsidiaries are able to share best practices and in-depth industry knowledge to increase competitiveness,” Sgro wrote.

“As well, HIRE centralizes some of the digital marketing spend, enhancing awareness for brands in the marketplace. Business leaders can spend less time on non-revenue generating activities and spend more time focusing on growth and sales activities,” he said.

Srgo is projecting HIRE to more than double its revenue in 2021, relying on strong organic growth as well as inorganic additions. The analyst estimates HIRE’s 2020 revenue and adjusted EBITDA at $11.2 million and negative $0.4 million, respectively,

2021 revenue and adjusted EBITDA at $23.2 million and $1.1 million, respectively, and 2022 revenue and adjusted EBITDA at $27.4 million and $2.0 million, respectively. (All figures in Canadian dollars except where noted otherwise.)

“We believe HIRE's decentralized consolidation model and nationwide base of strong customer relationships form a strong foundation to up-sell scalable HR software. We believe the ultimate vision for the business is core resilient staffing revenues, a mix of higher value HR consulting services, and a portfolio of high-margin technology products,” Sgro wrote.

On valuation, Sgro used a 2.0x multiple of his 2022 EV/revenue estimate and said that HIRE is currently trading at 0.9x, which although represents a premium to traditional staffing firms at 0.5x is a marked discount to tech-enabled staffing firms at 6.8x.

“We believe HIRE deserves to trade at a larger gap to traditional staffing peers due to: (1) higher organic growth and margin potential; (2) strong leadership and a unique consolidation strategy; and (3) the vision to meaningfully broaden and commercialize its HR technology portfolio,” Sgro said.

HIRE did well over its first 12 months on the TSXV, going from $0.60 to $0.82 between December 23, 2019, and December 31, 2020. So far in 2021, the stock is down 49 per cent.

At the time of publication, Sgro’s $0.75 target represented a projected one-year return of 79 per cent.

On its newest acquisition in Pulsify, HIRE said as partial consideration it has issued about 3.1 million shares at $0.607 and has agreed to issue up to USD$1.5 million in additional shares upon completion of performance based earnouts.

HIRE last reported its financials on November 30, 2020, where it posted group revenue down 16.1 per cent year-over-year to $2.5 million and general adjusted EBITDA of negative $56,477 compared to negative $145,862 a year earlier.

Disclaimer: Nick Waddell owns shares of HIRE and the company is an annual sponsor of Cantech Letter