House of HR - What you are looking for
All,
Please find our initiation of House of HR here.
If you are looking for a safe 8% yield on a senior secured bond in a pro-cyclical business, HoHR is a good place to look. While performance is still falling, and cash flows don’t cover the significant interest burden on the business, the company is well positionned in a growth sector and has no significant idiosyncratic ailments.
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Investment Considerations:
- Trading somewhere between the 2026 and 2027 call prices, the SSNs are constrained at a YTM of 8.4% or YTW ('27 call) of 8%. We'd be ready to buy these bonds with a 9-handle, but above par, while a solid investment in our view, they are too tight for us and not convex enough.
- The structure allows for significant baskets that management could use to bolster liquidity if its continued M&A strategy and the current cash burn erode the likely limited liquidity headroom today. Perhaps that or a downgrade will provide the right entry point for us.
- On the upside, these bonds are constrained to the yield they generate. On the downside, we see a 10% YTM at 96c/€ as maximum from today's perspective - i.e. 6 points. So it should be difficult to lose money with HoHR.
- HoHR is a good company in a growth industry with a big balance sheet and runway. It is structurally weaker than its larger rivals, but relatively protected within its niche. We are confident management can turn around the bench and sickness rates within approx. a year and a half, however, recovery beyond that will have to come from a better macro and geopolitical environment.
Key Conclusions:
- The company is going through a cyclical downturn, rather than facing secular headwinds. STS has stabilised, but the more discretionary E&C segment remains weak, with recovery not expected before H1 2026; sickness ratio and bench rates are creating ~1% revenue drag and causing continued underperformance, although in line with peers. The care ratio has been brought under control. (Current Trading).
- Cash burn is likely to persist through 2026, with the RCF heavily drawn; margin uplift from improving sickness and bench rates could add ~€20m, but this alone will not cover the interest burden (Driver).
- An additional ~€20m could come from revenue growth in 2026, reducing burn to ~€30m p.a., though margin restoration is required before growth can meaningfully drive earnings (Driver).
- HoHR has sufficient flexibility under its documentation to withstand this for a time, but stabilisation hinges on simultaneous revenue recovery and margin improvement (Driver).
- Bonds and even the 2nd lien loan are fully EV covered, though we view the group as overleveraged beyond €1.6bn of debt; DCF valuation comes in slightly below comps due to margin weakness (DCF).
- Trading comps suggest ~8x IFRS 16 EBITDA, taking into account that peers operate at greater scale with global reach; we also discount valuation for HoHR’s lack of operating and branding synergy across Powerhouses (Trading Comparables).
- The staffing market remains fragmented, with the top three players holding only ~15% and focusing on commoditised temp staffing; HoHR is close to #3 in the Netherlands and able to compete. In the medium-term, the sector faces disruption risk from online migration, but none of the players has thus far taken the medium to a point where it makes separate disclosures (Industry).
- HoHR maintains higher margins through its E&C division, but this segment is also highly cyclical. We don't know if the lack of integration across operations represents an unrealised opportunity or is simply impractical (Company).
Summary:
- House of HR (HoHR), headquartered in Belgium, is a decentralised HR services platform with operations spanning 11 European countries. The company focuses on specialised recruitment and project sourcing in higher-margin, skills-driven areas such as IT, engineering, finance, and healthcare—steering clear of more commoditised general staffing, particularly when compared with peers. Its structure is built around semi-independent “PowerHouses” and smaller “Boutiques,” each maintaining its own local branding and autonomy. This approach encourages entrepreneurship, though it also places limits on centralised integration.
- Majority owned by Bain Capital, HoHR is an M&A roll-up that, in contrast to other such stories, has avoided the vast integration costs that, for instance Emeria have amassed. However, it therefore also represents a much weaker setup with - so far - less reason to exist. Whether or not management are planning to make these investments, or how these would be financed, is not yet clear.
- Following the pandemic and its inflationary push, both the generic temporary staff placing STS division, as well as the more discretionary project focussed E&C division are experiencing soft demand - lower margin STS cycling faster through the downturn than higher value-added E&C. STS seems to have already stabilised, whereas management expects E&C to bottom out by/in H126. However, that depends also on the development of current geopolitical and macroeconomic uncertainties, including wars and tariffs, which are holding back investment on the continent.
- Except for €50m from improved Bench and Sickness Rates, HoHR depends on growth to cover its finances. Most of the change that creditors rely on will have to come from outside the company.
- Within the remaining €250m liquidity, the company likely only has ~€100m of headroom as the back-office of its multitude of operations is not integrated.
Key Value Drivers:
- Staffing is a growth industry. Once Europe (the Netherlands) works through its soft consumer demand and tariff uncertainties, the demand for temporary staffing and consulting projects will return.
- Besides revenue growth, HoHR's two internal leavers are Bench Rate (proportion of consultants and specialised workers on out-placed projects) and sickness rate. A normalisation of both together should result in €50m of incremental EBITDA due to the high proportion of variable cost in the business. The remainder would have to come from revenue growth, and the company has over three years before management should start addressing maturities.
- HoHR's niche positioning insulates the company from the competitive pressures exercised by its larger "commodity/mass-market" rivals. The company consistently achieves higher margins through the cycle.
- Covenants look like they are set wide enough.
Key Risks:
- The bonds are rated B- and could be downgraded into CCC territory if the E&C division does not stabilise soon.
- Liquidity is probably tighter than meets the eye. Because the back-offices are not integrated between the company's PowerHouses and due to WC fluctuations (out in Q1 and in in Q4), minimum cash levels could be around €150m, leaving only €100m of headroom while cash is still burning. Management have not ruled out further acquisitions, which to creditors feels reckless until growth comes back.
- In the medium-term, the sector as a whole is facing significant risk from online migration. None of HoHR's larger competitors has progressed far down that route, but they can bundle their resources on only a few projects that can be scaled across their entire businesses. HoHR, being less integrated and having only smaller-scale PowerHouses, should face higher cost and higher diversity in workers' skills that should slow down its migration relative to peers.
- According to management, current performance weakness is uniform across geographies, suggesting there is no single country risk lurking beyond the disclosure.
- HoHR has no tangible fixed assets to speak of.
Looking forward to discussing this name with you,
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003
www.sarria.co.uk