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HIRE Technologies is undervalued, Eight Capital says

HIRE Technologies

HIRE Technologies Look for continued margin strength from HIRE Technologies (HIRE Technologies Stock Quote, Chart, News, Analysts, Financials TSXV:HIRE), says Eight Capital analyst Christian Sgro, who reviewed the company’s latest quarterly report in an update to clients on Friday. Sgro stayed bullish on HIRE, reiterating his “Buy” rating and $0.75 target price, which at the time of publication represented a projected 12-month return of 83 per cent.

Toronto-based HIRE Technologies is a tech-enabled consolidator of staffing, HR consulting and IT firms using a decentralized partnership model to emphasize brand identity and independence of its assets across the still-fragmented staffing and HR space.

The company on Thursday released on its fourth quarter and year-end 2020 results, showing quarterly revenue up 13.3 per cent year-over-year to $3.3 million and an adjusted EBITDA loss of $0.3 million versus a loss of $0.8 million in Q4 2019.

HIRE said the revenue jump over the quarter was industry leading and due to strong results from new geographies and industry sectors added via acquisition, while on earnings, the better result was chalked up to improved cost structure.

HIRE Technologies

For the year, HIRE’s revenue dropped five per cent from 2019 to $11.4 million and adjusted EBITDA was also down five per cent to negative $0.6 million.

HIRE’s 2020 featured three acquisitions in the Headhunters, the Kavin Group and Taylor Ryan, which collectively expanded HIRE’s operations to Western Canada while adding new industries to its portfolio. Post-Q4, HIRE also acquired remote workforce people management company Pulsify.

“Despite the fact that the human capital market faced unique challenges in 2020, HIRE was able to outperform our peer group in Q4-2020, achieving record quarterly gross profit,” said HIRE CEO Simon Dealy in the company’s fourth quarter press release.

“By leveraging our experienced management team, diversified and recurring revenue sources, and highly disciplined cost management, we have been able to achieve record profitability. The Headhunters, Kavin Group, and Taylor Ryan acquisitions expanded the company’s footprint across Canada, offering permanent placement, recurring revenue, and highly experienced management,” Dealy said.

Looking at the quarter, Sgro said revenue of $3.3 million was a beat of his $3.1-million estimate, driven by sales in the recurring contract segment, while normalized gross margin of 35.9 per cent (excluding government support) turned out to be a record for HIRE. Adjusted EBITDA of negative $0.3 million was in line with Sgro’s negative $0.2 million.

Sgro said the gross margin profile of HIRE’s recent acquisitions exceeded that of the company’s core staffing business, while the company’s ability to convert contract staff to full-time placements is driving high-margin revenue opportunities, something the analyst sees as a theme through 2021 as employment and economic conditions recover post-pandemic.

“With peers reporting positive staffing industry trends into 2021, we believe HIRE is well diversified to deliver on above-industry growth all while broadening its platform. We believe HIRE is nimble enough to grow technology to be a meaningful mix of revenue over time, with Pulsify a perfect example of a SaaS add-on recently acquired without any cash outlay,” Sgro wrote.

“We have modestly increased our revenue estimates, shifting the mix more toward contract revenue given the early strength seen in The Kavin Group. We believe there is room for upside on our placement revenue estimate, where opportunities can be lumpier. We have increased our GM percentage estimates based on strength seen in Q4/20, which benefits the bottom line on a relatively unchanged opex profile,” he said.

Sgro is now calling for full 2021 revenue and adjusted EBITDA of $23.4 million and $1.2 million, respectively, and for 2022 revenue and adjusted EBITDA of $27.7 million and $2.1 million, respectively. For the upcoming Q1 2021, likely due before the end of May, Sgro said, the analyst is calling for revenue of $5.2 million and adjusted EBITDA of $0.1 million.

On the company’s balance sheet, Sgro said recent acquisitions looked to be the profitability driver throughout 2020 despite pandemic-related challenges. That scenario is a confidence booster on the company’s ability to generate cash flow this year, the analyst said. HIRE finished the fourth quarter 2020 with $0.3 million in cash and access to an additional $0.4-plus of credit.

Looking ahead, Dealy said in the Q4 press release he expects “very promising outcomes” from HIRE in 2021. Dealy said HIRE had a 117-per-cent increase in job orders in the fourth quarter and then a further 137-per-cent increase in the first quarter 2021.

“HIRE has seen a rise in the number of placements made and new clients signed, with recurring revenue sources accounting for more than 70 per cent of revenue. Our EBITDA success is boosted even further by the inclusion of our high-margin SaaS technology solutions, such as our Pulsify acquisition. All of this adds to HIRE’s excellent 2020 performance and leads to a strong start to the new fiscal year,” Dealy said.

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

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.

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