Prospects Brighter For Chandler Macleod

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This story features CRITICAL MINERALS GROUP LIMITED.
For more info SHARE ANALYSIS: CMG

-Business, recruitment confidence improving
-Employment turnaround seen for second half
 

By Eva Brocklehurst

There's one company that believes there's been a recovery in business confidence and demand since the federal election. Moreover, it's a professional staffing and employment service provider. Chandler Macleod ((CMG)) made the prognosis at the recent AGM. Moelis Australia considers the company has significant operational leverage via any upturn in the domestic economic environment, noting the company's remarks suggest improving levels of business confidence will likely translate to higher levels of customer demand from the second half of FY14.

Chandler Macleod owns the JuliaRoss recruitment business, Aurion, which develops talent management software, Luminary Search, which sources executives, and Forstaff Aviation, which provides an aviation workforce. The acquisition of Vivir added rehabilitation services through clinical contract staff, while AHS provides hospitality outsourcing to the accommodation industry. The company operates in Australia, New Zealand, Asia, UK and Ireland and has an annual turnover of $1.5 billion.

In terms of the company's earnings, quality has been greatly enhanced after the acquisition of AHS and Vivir, which Moelis estimates will deliver more than 20% of group earnings from FY14. Employment is a lagging indicator to any recovery in the economy and business confidence and the company did admit that tough conditions prevail at present, exacerbated by the traditional cessation of recruitment activity around an election. As a result, first half earnings FY14 will likely be lower than the prior corresponding half. What's important for Moelis is that Chandler Macleod signalled demand picked up after the election and the company has capitalised on this by gaining new business, as well as making targeted cuts to costs. The company, therefore, expects to make up ground in the second half and post results for FY14 that are similar to the prior year.

Chandler Macleod posted growth of 8% in underlying profit in FY13, which Moelis recognises as a solid outcome given underlying revenue declined by 9%. This was partly because 19% of revenues were exposed to the slowdown in mining activity. Management plans to expand earnings margins over the next 2-3 years from the 3% level experienced in FY13 via operational leverage and a focus on the higher margin revenue streams.

The FY15 price/earnings ratio of around eight times and healthy dividend yield greatly underestimates the potential of the stock so Moelis has a Buy rating with a price target of 60c. The broker forecasts FY14 earnings (EBIT) of $34 million and FY15 of $39.2m, while the dividend yield on each of those years is flagged at 6.5% and 7.6% respectively.
 

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