Ashley Services Lands A Big Fish

This story features ASHLEY SERVICES GROUP LIMITED. For more info SHARE ANALYSIS: ASH

-Extends global training reach
-Canaccord expects 20% growth
-Government exposure the key risk
 

By Eva Brocklehurst

Ashley Services ((ASH)) , a provider of vocational education and labour hire, has obtained a significant contract from the DHL group's supply chain division for the provision of training services, both in Australia and internationally. The contract leverages the company's existing relationship with DHL and validates its integrated labour hire and training model, in the opinion of broker Canaccord Genuity. Moreover, as DHL is a global company – a logistics heavyweight owned by Deutsche Post – this endorsement of Ashley Services' capabilities is reflected in the extension to international locations, for which government funding is not accessible to DHL.

The company listed on ASX in August this year and this is the second subsequent, significant expansion of its contract base. Canaccord has welcomed the DHL contract as this underpins its forecasts for 20% earnings growth into FY16. The broker maintains a Buy rating and $2.34 target. The company's first post-listing initiative was the acquisition of The Cantillon Institute in September, which opened up the non-government funded international student market.

The company derives a significant portion of its revenue from Commonwealth and state government funding. There are 15 state government funding contracts in its portfolio at the present time and Canaccord warns there is always a risk that one or more of these could be lost for breaches or non compliance, or even as a result of the recent corporate restructure and initial public offering of shares. The vocational education sector is highly regulated and subject to regular audit and re-registration, so there is no guarantee registrations will be retained in future. The sector has been in the spotlight recently regarding the use of third party brokers to source students for operators, with the Victorian Department of Education ruling there was an over-reliance on these third parties. Canaccord stresses that these issues are not applicable to the business model and revenue base of Ashley Services.

Ashley Services will undergo a scheduled Commonwealth audit this month, essential for re-registration. The company also competes with other vocational education providers, both public and private, as well as tertiary education.These competition risks are coupled with the usual business risks as well as labour hire factors. The recruitment industry remains highly competitive and, while Ashley Services has a number of long-term contracts with its clients, the broker acknowledges these can be terminated on relatively short notice in a limited range of circumstances Based on pro forma FY154 forecasts around 83% of labour hire revenue comes from the company's top 20 clients.

Canaccord Genuity (Australia) was a joint lead manager to the IPO of Ashley Services at an issue price of $1.66.
 

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