Eight Capital analyst Christian Sgro is expecting above-industry growth from HIRE Technologies (HIRE Technologies Stock Quote, Chart, News, Analysts, Financials TSXV:HIRE), saying in a Thursday update to clients that with a balance sheet overhang now removed the company can renew focus on growth and consolidation in the staffing and HR sector.
Headquartered in Toronto, HIRE Technologies offers full-time, part-time and temporary staffing solutions in light-industrial, waste management and healthcare sectors.
Sgro’s latest comes after HIRE announced it closed on a new term-loan facility, as well as a new source of equity financing.
“The company has reported strong organic growth across subsidiaries, benefitting from a recovery in the staffing industry,” Sgro said. “We expect fundamentals to trend positive as HIRE navigates the income statement to FCF break-even and builds its network across North America.”
Sgro notes that the new financial sources, including $4.8 million in equity financing and a $3 million term-loan facility, are meant to replenish the company’s balance sheet and provide flexibility for the company’s working capital after the acquisition of Leaders and Co., a Canadian executive search firm with a large database, bilingual capabilities, and leadership in diversity-centric and Indigenous executive recruitment.
The acquisition came in at a price of $5.5 million including $4.4 million in cash and $1.1 million in stocks, with potential for an additional $1 million to come through future earn-outs. In 2021, Leaders produced $3.9 million in revenue, along with $1 million in EBITDA.
“The acquisition of Leaders is another example of the types of strategic acquisitions we will continue to pursue at a time when automating the hiring and retention process is critical for employers and human resources teams,” said Simon Dealy, HIRE’s CEO in the company’s August 30 press release. “The acquisition is immediately accretive to HIRE, increasing revenue and EBITDA as we leverage operational efficiencies, infrastructure and expertise to achieve optimal results through integration. These types of acquisitions are an effective way for HIRE to further grow its presence in the human resources and technology segment and will continue to be one of our core strategies to augment our growth.”
HIRE released its second quarter financial results on August 26, headlined by a record revenue quarter of $6.4 million for a 146 per cent year-over-year growth, slotting in ahead of the Eight Capital projection of $5.7 million, with the gross profit margin coming in at 38.5 per cent, ahead of Eight Capital’s 38.1 per cent projection.
On top of the Leaders acquisition, HIRE has remained busy on other fronts, most notably announcing its goals in relation to environmental, social and governance, with an emphasis on diversity, equity and inclusion. Among its stated goals are to appoint a highly qualified gender diverse candidate to HIRE’s board of directors, implementing a diversity, equity and inclusion policy, and providing free training to all HIRE team members focused on Indigenous histories and cultural awareness.
The company’s growth has not gone unnoticed, as it recently placed 39th on The Globe and Mail’s list of Canada’s Top Growing Companies.
The recent announcements have prompted revisions to Sgro’s immediate financial projections, raising his revenue projection for the third quarter to $6.8 million from $6 million to mark a 168.5 per cent year-over-year increase, with a gross margin of 41.3 per cent compared to the previous estimate of 38.1 per cent, though Sgro also projects the EBITDA to dip into negative territory at $100,000 compared to his previous estimate of $300,000 positive adjusted EBITDA.
Looking through an annual lens, Sgro has raised his revenue target for 2021 to $26.3 million for a potential year-over-year increase of 131 per cent, with a further increase to a projected $31.9 million in 2022, good for a potential year-over-year increase of 21 per cent.
From an EBITDA perspective, Sgro expects the company to break into positive territory in 2022 at a projected $900,000 for a three per cent margin, coming off of losses of $600,000 in 2020 and a projected $300,000 in 2021.
EV/Sales is the lone valuation multiple Sgro reports on in his analysis, projecting a drop from 2.7x in 2020 to 1.2x in 2021, then to 1x in 2022.
“As the company expands its mix of traditional staffing revenues, we are nudging down our valuation target to 1.5x to better align with peers,” Sgro said. “Our target remains a premium to staffing peers at 0.6x, which we believe reflects the potential for above-industry growth and the longer-term opportunity to upsell complementary HR technologies to HIRE’s nationwide footprint.”
Overall, HIRE’s stock price is down 55.2 per cent for the year to date, reaching a high point of $0.80/share on January 7. With the update, Sgro has maintained his “Buy” rating while reducing his target price to $0.55/share from $0.75/share for a potential return of 57 per cent.
Disclosure: HIRE Technologies is an annual sponsor of Cantech Letter.