- Outsourcing and recruitment company Chandler Macleod delivered a standout interim profit result - Further growth expected - Stockbroker Moelis rates stock a Buy

By Chris Shaw

Chandler Macleod is a human resources outsourcing and recruitment company that operates on both the recruiting and contracting sides of the blue-collar, office support, technical IT, health professional and executive markets.

In the view of stockbroker Moelis, Chandler Macleod delivered one of the standout interim results among Australian Small Industrials companies in the February reporting season, increasing underlying net profit after tax by 48% to $6.1 million.

According to Moelis, the result showed strong growth in the blue and white collar contracting operations, while also highlighting what was a strong operating environment across all of Chandler Macleod's businesses.

A 23% increase in group revenues to $498 million was entirely due to organic growth, notes Moelis, the gains reflecting increased contractor hours in both the Workforce and Recruitment divisions. Chandler Macleod continues to do well out of the mining boom, Moelis noting the mining sector now accounts for around 20% of group revenues.

The recent acquisition of Ross Human Directions ((RHD)) has now effectively been completed, Moelis seeing substantial cross-selling opportunities given the two groups have no common clients in their respective top 10's. On Moelis's numbers, the acquisition should be as much as 30% accretive in FY12.

This is already in the forecasts of Moelis, which is anticipating earnings per share (EPS) outcomes for Chandler Macleod of 3.6c in FY11 and 5.5c in FY12. This compares to the 2.3c earned in FY10. There is little basis for comparison with the market as given a market capitalisation of around $225 million there is no coverage of Chandler Macleod among the major brokers in the FNArena database.

Chandler Macleod management will update the market with respect to full year earnings guidance in the third quarter of FY11, Moelis expecting the update will show revenues in the second half matching those of the first half. This is despite a traditional first half seasonal bias, so reflecting the impact of the Ross Human Directions acquisition.

While the Chandler Macleod share price has almost doubled over the past year, Moelis continues to see value in the stock. On the stockbroker's numbers the shares are trading on an earnings multiple of less than 10 times in FY12.

In support of its positive view, the stockbroker highlights EBITDA (earnings before interest, tax, depreciation and amortisation) margins in the first half were 2.7%, which suggests upside given management has a target of 4-5% in EBITDA margins over the next couple of years.

Along with a Buy rating Moelis has set a price target on Chandler Macleod of $0.75, which compares with a current share price as at 12.10pm of $0.52. Over the past year Chandler Macleod shares have traded in a range of $0.22 to $0.57.

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