People Infrastructure Ltd (ASX: PPE) is another ASX share that has gone relatively under the radar this year compared to some of the bigger names.
The PPE share price has made a full recovery since March and trades at around $3.73 at the time of writing.
PPE share price chart
People Infrastructure hasn’t been featured before on Rask Media, so I’ll provide a detailed analysis of the company and a few of my own thoughts.
What does People Infrastructure do?
People Infrastructure is a leading workforce management company that was founded in 1996 and listed on the ASX in 2017.
It provides contracted staffing, business services and operational services in both Australia and New Zealand across 3 main sectors: health and community services, information technology (IT), and general staffing and specialist services.
People Infrastructure essentially acts as the middleman between a pool of 25,000+ candidates and its geographically-diverse client base of 3,500+, which typically engage over 5,000 candidates per day from the active candidate pool.
The story so far
Although the company has been operational since 1996, much of its publicly-available financial information only dates back to around 2015/2017. Even within this time, however, the growth it’s been able to achieve is really impressive. From 2015 to 2020, People Infrastructure has been able to grow revenue and net profit after tax (NPAT) at a compound annual growth rate (CAGR) of 24.8% and 29.7%, respectively.
Earnings per share (EPS) has also grown strongly with a CAGR of 21.4% and as you would expect, the PPE share price has followed the same upwards trend, delivering a capital return of 177% to shareholders since its listing date back in 2017.
Before I get ahead of myself here, it’s important to point out exactly how the company managed to achieve such impressive growth rates. Indeed, its positive reputation for quality customer service complimented by its strong sales force was undoubtedly contributing factors. However, it has also implemented a growth by acquisition strategy to expand into new key sectors.
A growth by acquisition strategy has the potential to work extremely well, but what can also happen a lot of the time is that companies buy too many businesses, or pay too much for their targets. In PPE’s case, it hasn’t made a huge number of acquisitions and when it has, it usually uses a combination of existing cash reserves and a drawn down debt facility.
What I like about People Infrastructure shares
The services business isn’t typically the most popular space for investors. Revenues are often non-recurring and the business will have to continually make sales just to keep up with the prior year’s results.
In the case of People Infrastructure, this may still be true, but what does make revenues sticky is the sectors that it operates in. Healthcare and IT are particularly high growth areas and I see these as fundamental drivers that will propel the business forward from here.
Now I’ll quickly circle back to PPE’s acquisitions because I think it’s made some pretty sensible additions over these last few years that expand the current offering.
In 2017, it acquired Melbourne-headquartered recruitment company Halcyon Knights in a $13.5 million transaction. This acquisition seemed to integrate well, as the company could then expand into new sectors such as software development, cybersecurity, consulting, management and marketing.
In 2019, People Infrastructure then acquired nursing businesses First Choice Care and Carestaff Nursing Services in a $16.8 million deal. Both of these companies have long histories of being reliable providers of nursing staff to Queensland public hospitals, private hospitals and residential care operators.
I particularly like People Infrastructure’s ongoing expansion in the health sector, as I see it as quite a defensive play. There will most likely always be the need for these sorts of services, and revenues from reliable sources like the NDIS and private insurance providers should result in some sticky cashflows.
Valuation and summary
With a trailing price/earnings (P/E) ratio of around 20, PPE’s valuation is on the cheaper side compared to other companies that generate similar levels of growth.
Even still, I’m prepared to look past the valuation because I like the qualitative aspects of this business and the direction it seems to be going. As a side note, employees hold around 17% of PPE shares and all senior-level employees have skin in the game as well.
I’d be happy to be a buyer of People Infrastructure shares at current levels. You could expect some volatility around the $3.80 mark as it reaches its pre-COVID level, however, for a long-term investment horizon, this volatility shouldn’t make too much difference.
