Quickstep Holdings 

Reported stronger second half 2018 performance than the first half: Advanced carbon fibre composite component manufacturer, Quickstep Holdings Limited (ASX: QHL) has come up with a transformative change in its performance lately at the back of its OneQuickstep change program that started one year back with an attempt to bring the group on track with regards to growth. Quickstep Holdings’ stock has risen 22.67% in three months as on August 30, 2018 and the company delivered stronger second half 2018 with positive operating profit (EBIT) of $0.9 million compared to an operating loss of $2.2 million for the first half. The company’s operating cash flow for the second half 2018 is of $3.6 million, compared to a cash outflow of $4.3 million in the first half, which reflects a significant improvement in EBITDA over the first half and improved working capital management. As a result, the group’s full year 2018 net loss improved to a loss of $2.9 million for FY18 from a net loss of $6.7 million for the previous year. Further, the company has reduced the total debt by $2.0 million to $13.6 million since 31 December 2017. Meanwhile, QHL has recently secured a $4 million rise in its short term working capital facility to support Joint Strike Fighter (JSF) volume growth in aerospace sector. Production for the Joint Strike Fighter program that increased 45% in FY18, will continue to increase in FY19.
 
Catalysts to deliver better results: Group’s work in relation to the Joint Strike Fighter program is the key catalyst for the next fiscal year. Other catalysts include two new export programs secured with Boeing Defense and becoming an approved supplier for Boeing along with Memorandum of Understanding (MoU) signed with Lockheed Martin for a Long Term Flexible Contract (LTFC). At the moment, the group expects its revenue to grow by at least 20% in FY19 with positive earnings. Based on the foregoing, we give a “Speculative Buy” recommendation on the stock at the current price of $ 0.091.

 

FY 18 Financial Performance (Source: Company Reports)
 

People Infrastructure 

Sound Financials:People Infrastructure Ltd (ASX: PPE) posted decent financial numbers in Financial Year 2018, with revenue growing at 14.3% to $219.00 million compared to $191.98 million in the financial year 2017. Major growth in revenue was driven by the existing clients and new client wins. EBITDA for the company came in at $13.0 million, up 27% from $10.25 million posted in FY17. Net Profit after tax came in at $8.4 million, an increase of 34.9% compared to $6.2 million posted in FY17.



Growth Opportunities – The company sees ample opportunity in Australia in various spaces such as Healthcare market, Blue Collar market and IT market. These markets are largely fragmented in the country, creating an entry point for the PPE to gain substantial market share. Healthcare segment has a market size of $2.64 billion and is growing at the rate of over 5%. Since PPE has the appropriate infrastructure such as community service employees and nurses, the company stands at an advantage from strategic viewpoint. Similarly, Blue Collar market and IT market are also experiencing consistent growth and PPE stands to benefit by tapping the potential in these sectors. 

Impact of Acquisitions – People Infrastructure has made two major acquisitions in August 2018 – Network Nursing Agency Pty Ltd. and Australian Healthcare Academy Pty Ltd., together known as Network Nursing Agency. The acquisition is a logical and well strategized expansion decision by the company since it would:

1. Expand the reach of the company in Healthcare sector into nursing specifically
2. Result in Cross selling benefits that the company stands to achieve through the disability clients

The company estimates that the acquisition of Network Nursing Agency would add to the tune of $2.2 million in EBITDA for next 12 months (September 2018 through to September 2019). Additionally, it would contribute $1.2 million (inclusive of financing cost).

Key Metrics: Profitability ratios have significantly improved for the company in FY18 compared to the previous corresponding year. Better operating margin indicates the ability of the company to control its cost and expenses related to the Business operation. Similarly, higher Net Profit margin posted by the company is indicative of its ability to convert the sales into profit.
Stock Performance: The stock has been a consistent performing one, generating YTD returns of 48.50%. The price surge does not seem to slowdown anytime soon with the stock making higher highs and higher lows on decent volumes. The breakout in the stock came this month from the level of $1.72 on above average volumes indicating confidence of the investors in the stock. A minor correction from the high of $2.1 presents an opportunity while near term support price for the stock is $1.86 as the stock has not closed below that level over past three trading sessions. Improved results, expansion into new space and positive outlook of the company makes PPE a worthy stock. We recommend for a ‘Speculative Buy’ on the stock at the current price of $2.09.
 
 

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