The most important resource for any company is people. The human factor in business will play a key role at all times. Managing a two-person workforce competently is just as important as leading a team of several thousand. People are similar to each other, but at the same time they have a number of unique characteristics. Combining them and using them profitably for the development of the company is the most difficult task for any manager. Nowadays, they are helped by advanced technologies for data analysis and building algorithms on Saas platforms.
Paycor HCM Inc., the leading provider of human capital management platforms in the United States, will be IPO today. The placement will be carried out on the NASDAQ exchange. Trading will begin tomorrow under the ticker “PYCR”. Let’s talk in more detail about the specifics of the business and the company’s product.
Paycor HCM Inc. business
Paycor HCM Inc… was founded in 1990 and is headquartered in Norwood, Ohio (Norwood, OH). The company is run by Raul Villar Jr., who previously headed AdvancedMD. Paycor’s mission is to improve the quality of human capital management by implementing advanced solutions for obtaining analytical information in real time.
The unified cloud platform of the company allows you to optimize the personnel management process, representing a single database of employees. Hobbies, individual talents and psychological characteristics of each member of the team are taken into account. The platform is flexible and scalable, which enables the business to pursue a balanced personnel policy.
Paycor product allows:
- Manage the payroll.
- Manage personnel by setting tasks with deadline control.
- Administer benefits for certain categories of employees.
- Take into account the individual talents of employees.
- Involve employees in corporate life.
Over the past three decades, human capital management has evolved from a simple HR record to an entire system to improve labor productivity, which has given corporate HR departments strategic importance.
The main clients of the company are medium and small businesses. More than 28,000 businesses with nearly 2 million employees in 50 states use the Paycor platform. Before analyzing the financial performance of a company, let us consider the volume of the human capital management market.
Market and Competitors Paycor HCM Inc.
According to the issuer’s estimates, the company’s market in the United States will reach USD 22.5 billion by 2022. The average growth rate from 2017 to 2020 was 9.2%. As of 2020, there were 1.3 million SMEs in the United States with 61.2 million employees.
The main drivers of growth will be the need to standardize HR rules and business processes. The USA is a leader among developed countries in the adoption of cloud technologies in HR and HCM.
Paycor’s main competitors are:
- Automatic Data Processing (ADP)
- Workday (NASDAQ: WDAY)
- Ceridian HCM (NYSE: CDAY)
- Ultimate Software Group (NASDAQ: ULTI)
- Oracle (NYSE: ORCL)
- SAP (NYSE: SAP)
- Kronos (NYSE: KRO)
As you can see, there are both eminent and little-known companies among the competitors.
Financial performance of Paycor HCM Inc.
The company has been significantly affected by the COVID-19 pandemic, as many small and medium businesses have closed due to the lockdown. Revenue for the last 12 months amounted to USD 335.63 million. Free cash flow was equal to an insignificant USD 5.3 million.
According to S-1 reporting data, revenue for the last 9 months as of March 31, 2021 amounted to USD 264.76 million. Relative growth over the same period in 2020 – 4.01%. For the fiscal year ended June 30, 2020, sales were $ 327.91 million. Relative growth over the same period in 2019 – 12.50%. Revenue tends to fall, but the situation may change dramatically on recovery growth. The report for the third quarter will be decisive.
The loss for the last 9 months as of March 31, 2021 amounted to USD 64.11 million. The fall to the same period in 2020 is 1.26%. Gross profit for the last 9 months as of March 31, 2021 reached 152.26 million USD. Relative growth over the same period in 2020 – 2.15%.
The company’s liabilities amount to USD 43.77 million. Cash and cash equivalents amount to USD 25.44 million. As you can see, Paycor has a high leverage (negative cash position is USD 18.11 million). Nevertheless, market prospects and economic recovery give grounds to expect positive financial results in 2021.
Strengths and weaknesses of Paycor HCM Inc.
Having analyzed the business, financial statements and the issuer’s market, we will highlight its strengths, as well as the risks of investing in it. TO strengths of the company I can attribute:
- A product that fully satisfies the needs of the target audience.
- An easily scalable business model that is easy to bring to international markets.
- Strong management.
- Leadership in the maternal market for human capital management.
- The placement underwriters are leading investment banks.
TO risks of investing in Paycor securities I can attribute:
- A drop in revenue growth due to the effects of the coronavirus pandemic.
- Big debt.
- Lack of net profit generation and no intention to pay dividends.
- Strong competitors in the industry.
IPO Details and Capitalization Estimation Paycor HCM Inc.
It is planned to sell 18.5 million ordinary shares at the IPO at a price ranging from USD 18 to USD 21 per share. The placement volume at the top price will amount to USD 360.80 million. In this case, the capitalization of Paycor will reach 3.34 billion USD.
The underwriters of the IPO were Truist Securities, Inc., Stifel, Nicolaus & Company, Incorporated, Robert W. Baird & Co. Incorporated, Raymond James & Associates, Inc., Needham & Company, LLC, JMP Securities, LLC, Fifth Third Securities, Inc., Cowen and Company, LLC, Deutsche Bank Securities Inc., Goldman Sachs & Co. LLC, JP Morgan Securities LLC, Jefferies LLC and Credit Suisse Securities (USA) LLC.
Since the company does not generate net profit, we use the P / S (capitalization / revenue) multiplier (ratio) to assess the potential capitalization. At the time of the placement, the P / S will be 9.88. For the tech sector, P / S of companies going to IPO, on average, is 15. The upside for Paycor securities will be 51.82% (15 / 9.88 * 100 – 100).
Taking into account the above, I recommend the shares of this issuer for short-term speculative investment.
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