Minnow Humanis On High Speed Growth

This story features HUMM GROUP LIMITED. For more info SHARE ANALYSIS: HUM

– Recent acquisition to boost operations and earnings for Humanis
– New management and senior staff delivering improved performance
– Year to date earnings better than expected
– Moelis rates Humanis a Buy

By Chris Shaw

Specialist labour hire and professional placement firm Humanis Group ((HUM)) recently acquired Total Recruitment Group, a deal stockbroker Moelis expects will deliver both strategic and financial benefits stemming from an expansion in overall activities.

Moelis notes the acquisition gives Humanis additional recruitment services and HR solutions for the office and business support market. The deal also provides Humanis with some points of differentiation, including a mining training simulation facility and some international operations in the Philippines.

Projected sales for the Total Recruitment operations acquired are more than $150 million in FY12, while EBIT (earnings before interest an tax) should be around $5.7 million.

The Total Recruitment acquisition will mean Humanis now comprises four key brands, with an 80:20 earnings mix split between blue collar and white collar employment. Moelis estimates around 35% of group revenues will be generated by providing temporary labour to the resources sector via its Philippines business.

An earnings update offered by management at the end of September indicated both the Humanis and Total Recruitment businesses were ahead of budget for the first two months of FY12. Moelis notes this is particularly a positive for the core Humanis business, as it suggests the new senior management team and new staff in all key positions are delivering improved performance.

Earnings for both divisions are expected to exceed September quarter expectations, management seeing this as a result of expansion into new, higher margin segments that has more than offset ongoing economic volatility.

Solid earnings performance should continue according to Moelis, its earnings per share forecasts standing at 2.5c in FY12 and 3.6c in FY13. This compares to the 0.5c earned in FY11. There is little basis for comparison as with a market capitalisation of around $60 million there is no coverage of Humanis among brokers in the FNArena database.

Assuming its forecasts prove reasonably close to the mark, Moelis sees value in Humanis at current levels, as this would indicate earnings multiples of 9.0 times in FY12 and 6.4 times in FY13. Risk appears to be to the upside, as Moelis notes EBIT margins remain below management's target of 5% within the next three years and around 7% longer-term.

The upside potential stems from the expectation Humanis will enjoy significant operational leverage from a revenue base of a forecast $500 million in FY12. Earnings will be the primary driver of investment returns according to Moelis, as no dividends are forecast through FY14.

Moelis has set a price target on Humanis of $0.28, which compares to a current share price as at 10.15am this morning of $0.23, unchanged on the day. Over the past year Humanis has traded in a range of $0.125 to $0.45.  

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