Eight Capital drops target price on HIRE Technologies

The stock has been falling steadily for a while now but Eight Capital analyst Christian Sgro is staying bullish on HIRE Technologies (HIRE Technologies Stock Quote, Chart, News, Analysts, Financials TSXV:HIRE), maintaining a “Buy” rating but reducing his target price in an update to clients on Wednesday.

Headquartered in Toronto, HIRE Technologies offers full-time, part-time and temporary staffing, HR and IT solutions in sectors such as light-industrial, waste management and healthcare.

Sgro’s latest analysis comes after HIRE reported fourth quarter financial results for 2021, paired with its year-end figures.

HIRE wrapped up its 2021 fiscal year with a fourth quarter headlined by revenue of $8.1 million for a five per cent sequential increase and 142 per cent year-over-year growth, while also coming in slightly ahead of the Eight Capital estimate of $7.7 million.

The company’s margin areas also provided a positive for the company, as the adjusted EBITDA report of $0.3 million with a four per cent margin came in ahead of the Eight Capital projection of $0.2 million and a 3.2 per cent margin, while HIRE’s gross margin for the quarter came in at 49.4 per cent, slightly ahead of the Eight Capital projection of 48.7 per cent. 

“2021 was a watershed moment for HIRE as we scaled through successful acquisitions, drove organic growth, and achieved normalized profitability in our second year as a public company,” said Simon Dealy, HIRE’s Chief Executive Officer in the company’s May 2 press release. “Our industry leading organic growth is a testament to the trust our clients place in us, as well as the unique value we unlock from our multi-brand acquisition approach. Client and candidate demand has never been greater, and HIRE has built a solid foundation from which to continue its strong growth performance.”

In the company’s conference call, management noted three emerging industry trends, including the growing expectations of staffing vendors to put HIRE’s Pulsify offering in a positive position, along with the market shifting toward being more candidate-driven, while HIRE’s data-driven analytics and insights are meeting the worldwide trend of digitalization.

All told, the company closed the quarter with $1.7 million in cash on its balance sheet compared to $4.3 million in debt, with Sgro expecting a stable build in cash flow from operations to fund payables, debt, and certain earn-out obligations.

“Ultimately, we see some balance sheet risk should revenue performance soften, however expect that execution on revenue and cost synergies will support profitability,” Sgro said. “We expect a pause in M&A in the near-term as the company focuses on organic initiatives.”

HIRE Technologies wrapped up its 2021 fiscal year with $27.7 million in revenue for a 143 per cent year-over-year increase, and Sgro believes there’s more to come in reflecting the strength of the company’s permanent placement segment. 

In revising his estimates, Sgro slightly increased his projection for 2022 revenue from $32.6 million to $33.5 million for a potential year-over-year increase of 20.9 per cent, while he also elevated his 2023 estimate from $34.1 million to $35.1 million for a potential year-over-year jump of 4.8 per cent.

From a valuation perspective, Sgro foresees the company’s EV/Sales multiple dropping from the reported 0.6x in 2021 to a projected 0.5x in 2022, with the projection remaining there for 2023.

Meanwhile, after breaking into positive territory at $0.1 million in 2021, Sgro unveiled an improved forecast for adjusted EBITDA, raising his 2022 projection from $1 million and a 3.1 per cent margin to $1.3 million and a four per cent margin. Looking ahead to 2023, Sgro’s forecast has moved from $1.3 million and a 3.8 per cent margin to $1.8 million and a 5.2 per cent margin.

In terms of valuation, Sgro introduces an EV/adjusted EBITDA multiple of 12.7x for 2022, which he expects to dip to 9.3x in 2023.

Sgro also slightly tweaked his gross estimates, as he now forecasts $17 million in gross profit for a 50.6 per cent margin in 2022 (previously forecast at $16.3 million for a 49.9 per cent margin), while his 2023 projections are now set at $17.7 million for a 50.4 per cent margin (previously forecast at $16.8 million for a 49.4 per cent margin).

With his “Buy” rating, Sgro has cut his target price from $0.55 to $0.40 per share, representing at press time a projected one-year return of 135 per cent.

“As HIRE integrates businesses and executes on cross-sell, we model cash flows building from breakeven levels as the company manages leverage and drives increased profitability,” Sgro said. “We think HIRE’s diversified portfolio across the staffing and HR advisory value chain support this trajectory.”

HIRE Technologies has seen its stock price fall by 26.1 per cent since the start of 2022 as it was unable to sustain an early spike to $0.25/share on January 11, having fallen to a 2022 low close of $0.15/share on February 25.

Disclosure: Cantech Letter’s Nick Waddell owns shares of HIRE