LiveHire emerges from its 'lost year' by Yolanda Redrup
For human resources technology company LiveHire, the 2018 financial year was a "lost year", according to Morgans senior analyst Ivor Ries.
The business, which had previously had a strong customer win rate of about 80 per cent of the tenders it went for, according to Mr Ries, failed to win any major deals.
The company, which builds a talent pool of job seekers who can be pre-screened for subscribing employers to allow for a faster and more targeted recruitment process, shifted its marketing strategy from one that targeted firms with 500 to 5000 employees to one centred on top-tier organisations with 100,000 employees.
"They thought even if they only won one or two of those that would be a great advertisement for their tech and it would grow the business," Mr Ries told The Australian Financial Review.
"What they didn't take into account was the bigger the company, the more layers of management and the longer the process.
"They consumed a huge amount of management time chasing three large tenders and at the end of the year they didn't win any of them and the company lost 12 months."
Investors were not expecting strong 2017-18 results in August and that weighed on the stock, with shares losing two-thirds of their value between January and August 1.
But with the appointment of new chief executive Christy Forrest in June, Mr Ries was confident LiveHire could turn around its fortunes.
"When Christy took over she said let's go back to doing what we do well and go back to chasing our sweet spot of 500-5000 employees," he said. "Since that happened they've gone back to a good win rate on new clients."
The share price performance has also started to turn around, climbing 25 per cent since the start of August to trade around 60¢.
In late August the company announced that it had closed six new deals with businesses such as Xero, Nissan Australia, Calibre Group and Komatsu Australia, taking its total to seven wins so far in the quarter.
While the deals are not individually expected to be material to the business, it was a sign that its change in strategy was paying off.
If the business successfully executes on its current strategy, Mr Ries said the returns for shareholders could be "substantial", but it also carries some risk.
"The company is an early stage technology business and is yet to become self-sustaining from a cash-flow perspective," he said. " The stock is high risk. As the stock trades well below our valuation and price target, we maintain an 'add' recommendation."
Morgans currently has a price target for the stock set at 92¢ – around 44 per cent higher than it is currently trading.
Unlike Morgans, Foster Stockbroking is still pessimistic about the company, given its 2017-18 growth slow down.
In July the firm lowered its 12-month target price from 70¢ to 50¢, but maintained its 'hold' recommendation.
At the time Foster Stockbroking analyst Mark Fichera, who declared that he owned 50,000 LiveHire shares, as did Foster Stockbroking and associated entities, explained his downgrade as being driven by the business' slowing user growth of its talent community.
"The key area of concern was that TCCs [Talent Community Connections] grew only 8 per cent over the March quarter to 671,000, well below our forecast of 15 per cent growth to 717,000," he said in a note.
"This signified another step down in the growth rate, given that LVH achieved 15 per cent quarter-on-quarter growth in March and greater than 20 per cent for each of the other prior quarters since its IPO in 2016."
LiveHire went public in 2016 with an issue price of 20¢ per share and a market capitalisation of $40 million.
While the business has had seven customer wins so far in the 2019 financial year, Mr Ries said he was expecting more to be announced imminently.
"They can only announce them when the contract has been signed and it's about to go live," he said.
"But I believe there are quite a few others in the pipeline close to fruition, so they're back on track and that's mostly been done on direct sales."
As well as its direct sales channel, LiveHire has brought on board three of the top-10 global recruitment processing organisations (RPO – which is where major enterprises outsource their HR functions).
"The nature of the kind of clients they're dealing with are really big, cumbersome and they take up to a year or 18 months to make a decision and go through the technology testing," Mr Ries said.
"But every RPO is looking for a new technology edge to help win tenders and keep existing clients … so it's only a matter of time until some come through."
In its latest full-year results, LiveHire's revenue leapt 112 per cent to $1.65 million, while its talent community grew from 362,000 to 671,000 people.
LiveHire's board and senior management hold 33 per cent of the business. Co-founder and chief product officer Antonluigi Gozzi holds 11 per cent, while co-founder Dr Michael Haywood has 10.7 per cent. Other significant shareholders include Fidelity and Telstra Super.
"What you have to say is at the moment they have quite unique technology. There is no other company in the world providing this talent community system. Others claim to, but it's just email marketing," Mr Ries said.
"On the basis that they retain the technology leadership they have at the moment, they should be able to double or near double their revenues for many years to come as you put more and more people on the platform."
LVH Price at posting:
60.0¢ Sentiment: Buy Disclosure: Held
