Recruitment Market Segment LS
Recruitment Market Segment RS
Wednesday, 30 July 2008 18:37

Peoplebank boss claims all is sweet after share price plummet

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The share price of Australia's largest IT&T recruitment firm Peoplebank may be less than half its  value 12 months ago but managing director Leon Lau claims the company is sound. Mr Lau blames the market's current fear of microcap stocks for Peoplebank's greatly diminished value, but some sources say the $100 million cash acquisition of Ambit in February is responsible.

As far as Mr Lau is concerned, the current share price woes of Peoplebank are symptomatic of a general market downturn which always tends to punish the smaller stocks more heavily.

"It's got nothing to do with the operations of Peoplebank or the integration of Ambit. It's got all to do with the fear in financial markets of microcaps," says Mr Lau.

"If you have a look at the whole recruitment sector including Clarius, Talent 2, Rubicor and all the rest of them, you'll see that up until recently, we fell less than anybody else."

When Peoplebank acquired Ambit for $100 million, $50 million was provided by private equity group Navis Capital, which now has a controlling stake in Peoplebank, a further 10 million came from "sophisticated investors", and the rest was made up by $40 million of borrowings from two banks, Commonwealth Bank and Westpac.

It is that $40 million in debt to fund an acquisition of another recruiter when the market was near its peak that has raised some concerns in the marketplace about Peoplebank. However, although Peoplebank's market cap is now just over $53 million, Mr Lau dismisses any concerns that may be held over the company's debt level. Please read on to page 2


"I can't tell you what our debt is going to be because we release our results in about three or four weeks but we've got less than two times EBITDA cover for our debt and our debt is less than 40 million," he says.

"It is not an issue. The banking facilities we've got in place are also not an issue because we got them back in December so we would have had to pay probably two to three times the margin we've actually got our three-year loans on at the moment. We were quite fortunate in that sense."

The merger with Ambit has provided Peoplebank with a good spread of clients across the government and corporate sectors, as well as more even geographical diversity. However, some industry watchers have postulated that the company may be vulnerable because it's client base is heavily weighted toward the contractor market space rather than permanent placements.

Not surprisingly, Mr Lau rejects this argument, saying that in fact the opposite is true.

"That's a plus for us going forward in the current economic cycle. If business confidence becomes a slowing economy, which it apparently is, if you have a high permanent recruitment component of your business, you will suffer more than if you have a high contracting component.

"The reason is that when business confidence drops and people stop hiring, they stop hiring permanents to keep their headcount down. Contractors tend to stay on for the life of the projects.

"What happens then is that new projects may not get started but there's always a fixed 12 to 18 months lag time if you're going into a very steep downturn for contractors to get laid off. That's only happened to my knowledge twice in 27 years.

"The general rule in the cycle is that the more contracting you've got in a downturn, the more resistant you are to a downturn in the economy because that's an ongoing revenue and margin coming in. If you're heavily biased towards permanent, that falls off a cliff in two or three months and you're caught there with all your infrastructure, salaries, staff and the rest of it."

So what of Navis, who bought a controlling interest in Peoplebank at about double the current share price? Are they happy with the way things are going?


"They're happy with the operation of Peoplebank but they may not be happy with the share price," says Mr Lau.

"They take a medium to long term view and they see this as a financial market aberration and not a reflection on the operations of Peoplebank and the integration of Ambit. They have directors on our board and they're very well involved in what's going on and they know the value of the company."

What of the integration of Ambit?

"That's going very well. All the front office and locations have all been done and we've got probably another three to six months work on the back office integration and then we'll be totally integrated as one functioning unit. You'll see our results in '08 and we're looking forward to having a pretty strong 2009 as well.

"We've got a pretty strong business and we're not worried about the share price, although I know other people will be worried about it. We'll be doing another year of record profits this year and '09 will be another good year. All we can do is keep on going making profits and paying dividends."

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Stan Beer

 

Stan Beer co-founded iTWire in 2005. With 30 plus years of experience working in IT and Australian technology media, Beer has published articles in most of the IT publications that have mattered, including the AFR, The Australian, SMH, The Age, as well as a multitude of trade publications.

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