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					                                                                                                                                                                                               16 November 2000

                                                                                                                           HiTech Group Australia

                                                                                                                           Australia – Sector

Strong Buy                                                                                                                 AGM confirms continuation of robust growth

Price:                                                                                    A$ 0.56                              Strong start to FY01: In the Chairman‟s address at the AGM
                                                                                                                                yesterday, Directors have noted that HIT has had a positive
                                                                                                                                commencement to this financial year and remains on track to deliver
                                                                                                                                “another exciting year of growth and development”. This growth has
Price performance chart
                                                                                                                                been achieved despite the short period of disruption during the
                                 Daily Share Price: HIT
                                                                                                                                Sydney Olympics, with Directors noting that placement capacity is up
                                                                                                                                since June 30 by about 35 per cent through an active program of
                                 Performance Relative to: XJO
                                                                                                                    10%         recruitment and training of account managers. The Chairman noted
                                                                                                                    5%          that the (higher margin) Permanent IT recruitment division in
                                                                                                                                particular continues to perform strongly, likely to result in HIT‟s EBIT

                                                                                                                    -10%        margin of 29.1% recorded in FY00 being sustainable for the foreseeable
                                                                                                                    -15%        future. Whilst BNPPE has not upgraded our earnings expectations, we
 $0.45                                                                                                              -20%
                                                                                                                                remain comfortable with our existing forecasts based on the






                                                                                                                                Chairman‟s comments.
                                                                                                                               Excellent record of growth since inception: HIT has managed to
Market data                                                                                                                     grow profitability every year since inception in 1993, aptly
Sector Index (XMI)                                                                                     2229.9                   demonstrated by its past four year annual revenue and EBIT growth
S&P/ASX 200 Index                                                                                      3320.4
                                                                                                                                being in excess of 46% and 80% respectively, all achieved organically.
                                                                                                                                In both 1998 and 1999, „Business Review Weekly‟ nominated HIT as
All Ordinaries Index                                                                                     3267
                                                                                                                                one of the top ten fastest growing private companies in Australia over
Company data                                                                                                                    a five year period.
ASX Code                                                                                                            HIT        Outstanding fundamental value: Whilst acknowledging HIT‟s low
Market Capitalisation (A$m)                                                                                   18.1              market capitalisation, we view the current fundamentals as compelling
Issued Capital                           (A$m)                                                                32.3              based on its past track record and more importantly its ongoing
Volume (daily 12m avg)                                                                                 47228
                                                                                                                                growth profile. The stock is trading at a discount of 68% and 70%
                                                                                                                                respectively to the BNPPE FY01 and FY02 Small Industrial earnings
12m Price Range (A$)                                                                              0.50/0.75
                                                                                                                                multiples despite forecast EPS growth of around 30% for the next two
Earnings adjustments                                                                                                            years and a current year prospective dividend yield in excess of 8%.
                                                                2000                     2001f 2002f                       Earnings forecasts
Previous NPAT ($m)                                                                                                         Year end: Jun                              1999            2000            2001f           2002f
Change in NPAT (%)                                                                                                           NPAT (Reported) (A$M)                      1.7             2.0              2.8                3.6
                                                                                                                             BNPE adj (pre abs) (A$M)                   1.7             2.0              2.8                3.6
Previous EPS (cps)
                                                                                                                               EPS (¢ps)                             267.3              6.3              8.8            11.3
Change in EPS (%)
                                                                                                                               PER (x)                                  0.2             8.9              6.4                4.9
                                                                                                                               EPS Growth (%)                                                          39.5             28.8
                                                                                                                             EBITDA ($m)                                2.0             3.4              4.3                5.2
                                                                                                                               Enterprise Value Mult.                   9.6             4.5              3.3                2.3
                                                                                                                             Dividend (¢ps)                                             2.0              4.5                6.5
                                                                                                                               Yield (%)                                                3.6              8.0            11.6
                                                                                                                               Dividend Cover (x)                                       3.2              2.0                1.7
                                                                                                                               Franking (%)                                             100             100             100
                                                                                                                             NTA per share                           $0.84            $0.14           $0.20           $0.26
                                                                                                                             Pr/NTA (x)                                 0.7             3.9              2.8                2.1
                                                                                                                             Net debt/equity (%)                       nmf              nmf             nmf             nmf
                                                                                                                           Source – BNPP Equities

     Todd Guyot                                                                                              Please read the disclaimer, warning and disclosure statements at the end of this document.
     + 61 2 9619 6716
                                                                                                                                                     1    EQ UITY             RESE ARCH
                                          Robust start to FY01 confirmed at AGM
Chairman confirms positive                In the Chairman‟s AGM address, Directors have noted that the robust
start to FY01                             growth displayed by HIT since inception in 1993 has continued in FY01,
                                          with HIT tracking internal targets which incorporate “another exciting year
                                          of further growth and development”. The Chairman noted that placement
                                          capacity has increased since June 30 by about 35% through an active
                                          program of recruitment and training of account managers that will
                                          continue throughout the year. The Chairman further noted that this growth
                                          has occurred despite the short period of disruption during the Sydney
                                          Olympics, although trading during this period was actually above budget.
Confirmation of operating                 Directors have reconfirmed that the operating environment remains
environment remaining positive            bouyant, in particular the Permanent division, underpinned by the chronic
                                          skills shortage within the IT&T sector of the economy. BNPPE estimates
                                          that the business mix in terms of Permanent and Contracting earnings is
                                          now approximately 50/50 for the Group. Whilst we have not made any
                                          alterations to our existing earnings forecasts, we remain confident in them
                                          being comfortably achieved based on Directors comments at the AGM.

Board continues to seek
                                          Directors continue to look for strategic acquisitions given the
complementary acquisitions                fragmentation of the Australian IT recruitment industry. The Board has a
which meet strict criteria                strict criteria in place including a prerequisite that any acquisition must
                                          have an immediate positive impact on earnings. The Chairman has noted
                                          that HIT has received and rejected many overtures in the period since
                                          listing, and is currently in negotiation with a number of small potential
                                          acquisition candidates that appear to meet the Board‟s criteria.

                                          Limited short term margin pressure
Limited EBIT margin pressure              A notable feature of HIT‟s business model is the high EBIT margins
likely in the short term                  achieved, in excess of 29% in FY00 and averaging 24% over the past three
                                          years, compared to other industry participants. Importantly, management
                                          believe that this high EBIT margin is sustainable for the foreseeable future,
                                          particularly in light of the continuing strong performance of the permanent
                                          division which achieves margins considerably higher than the contracting
                                          division. Management have noted at the AGM that HIT can achieve
                                          increasing economies of scale as revenue growth increases off what will
                                          remain a relatively stable cost base over the medium term, with more
                                          volumes able to be captured off the existing number of specialist IT
                                          recruitment consultants within the Group. Additionally, management have
                                          previously noted the positive impact of the Internet on HIT‟s business
                                          model, with efficiencies achieved from large CV‟s and applicants being
                                          able to be processed over it.
                                          In comparison to the EBIT margins which HIT achieves, fellow listed IT
                                          recruitment company CND achieved EBIT margins of 4.2% in FY00 and
                                          4.4% in FY99. The major reason is that CND undertakes a large amount of
                                          preferred supplier work for IBM, EDS, Optus, Telstra, AMP and American
                                          Express. This work is higher volume, lower margin contracting. HIT does
                                          not chase this type of work, believing that with the current shortage of
                                          skilled IT contractors it remains beneficial to be a high value, niche supplier
                                          to its client base. Management have previously estimated that Australia
                                          suffers from a shortfall of up to 30,000 IT&T professionals.

                       Please read the disclaimer, warning and disclosure statements at the end of this document.
                                           2     EQ UITY           RESE ARCH
                                          HIT is in the enviable position of being large enough to provide a high
                                          value add service to its client base, yet small enough to continue exploring
                                          niche growth opportunities and hence sustain its historic robust growth
                                          profile. HIT has an established client base of more than 110 organisations,
                                          with a predominantly blue chip, high growth sector representation. Major
                                          clients include IBM, Westpac, Qantas, St George, CSC, AGL, Rothmans,
                                          ASX, Traveland, Ausdoc, Magna Data and John Fairfax. Management have
                                          previously estimated that HIT‟s top 5 clients now account for around 25%
                                          of revenues, down from 65% in FY99, and reflective of the significant
                                          growth achieved from new clients in FY00. Management continue to
                                          reduce reliance on its major clients, however believe it does not constitute
                                          huge risk given the chronic shortage of skilled IT contractors in the

Unique management structure
                                          A further key to the high margins achieved is HIT‟s unique management
in place                                  structure within the IT contracting industry, based around the concept of
                                          maintaining quality staff, high service levels and client satisfaction. HIT
                                          has a flat management structure, which is heavily bonus driven based on
                                          performance. HIT currently deploys three teams of account managers with
                                          each team consisting of a team leader supported by a number of account
                                          managers all of whom are IT&T specialist consultants responsible for
                                          placing candidates in permanent positions and securing contracting
                                          placements. Whilst there is some natural turnover at the account
                                          management level, the turnover at the team leader level is low. Account
                                          managers look after the entire process for any client from search and
                                          selection to placing the candidate to account management once the
                                          candidate has commenced.

                                          Outlook and recommendation
We view the current                       Whilst we acknowledge the low market capitalisation of HIT, we regard
fundamentals as compelling                the current stock fundamentals as outstanding. HIT is currently trading on
                                          prospective discounts of 68% and 70% respectively to the BNPPE Small
                                          Industrial earnings multiple despite an operating environment that
                                          remains robust and our belief that the earnings forecasts in place possess
                                          risk to the upside. As again confirmed at the AGM, HIT has developed a
                                          strong niche position within what remains a highly fragmented industry,
                                          with positive ongoing growth opportunities, both organic and acquisitive.
                                          HIT posseses a number of the favourable characteristics of those growth
                                          companies favoured by BNPPE including high calabre management with a
                                          proven track record, strong positioning within a high growth industry
                                          underpinned by the structural shift toward outsourcing, and high free cash
                                          flow generating ability. We regard the prospective current year dividend
                                          yield in excess of 8% (fully franked) as not only sustainable, but likely to
                                          continue expanding as the robust growth profile materialises and further
                                          EPS         growth         in       subsequent         years         occurs.

                       Please read the disclaimer, warning and disclosure statements at the end of this document.
                                           3     EQ UITY           RESE ARCH
HiTech Group Australia (HIT:$0.56)
Valuation data                                                               Interims ($m)
Year ending Jun              1998    1999        2000     2001f     2002f                                1h98     2h98   1h99    1h00     2h00
EPS (c)                                                     8.8      11.3    Sales revenue                                         5.1      6.4
P/E ratio (x)                                               6.4       4.9    EBITDA                                                1.2      2.2
P/E relative *                                               32        30    EBIT                                                  1.1      2.2
EPS growth (%)                                                     28.8%     BNPE adj profit                                       1.2      0.8
                                                                             Reported profit                                       1.2      0.8
EV / EBIT (x)                                               3.3       2.4    EBIT / sales                                       22.7%    34.2%
EV / EBITDA (x)                                             3.3       2.3    EPS (c)                                               3.6      2.7
                                                                             DPS (c)                                               0.0      2.0
CFPS (c)                                                    7.9      11.4    % of FY sales                                      44.1%    55.9%
Price / CF (x)                                              7.1       4.9    % of FY EBIT                                       34.4%    65.6%

DPS (c)                                                      4.5      6.5
Yield (%)                                                  8.0%    11.6%     Cashflow ($m)
Franking (%)                                              100%     100%      Year ending Jun             1998     1999   2000   2001f    2002f
                                                                             EBIT                                                  4.2      5.1
NTA per share                                             $0.20     $0.26    Net interest paid                                     0.1      0.1
Pr / NTA                                                    2.8       2.1    Dep'n and amort'n                                     0.1      0.1
                                                                             Tax paid                                            (1.2)    (1.4)
                                                                             Gross cash from op'ns                                 3.1      3.8
Profit and loss ($m)                                                         (Inc) / dec in wk'g cap                             (0.6)    (0.7)
Year ending Jun              1998   1999        2000      2001f     2002f    Other                                               (0.0)      0.6
Sales revenue                  5.5    7.9        11.4      14.8      19.0    Operating cashflow                                    2.6      3.7
   growth over pcp          48.9% 42.9%        44.8%     29.5%     28.0%     Investing cashflows
EBITDA                         1.0    2.0         3.4        4.3       5.2   Capital expenditure                                 (0.1)    (0.1)
Dep'n and amort'n              0.0    0.0         0.0        0.1       0.1   Asset sales                                           0.0      0.0
EBITAg                         1.0    1.9         3.3        4.2       5.1   Investments                                           0.0      0.0
Goodwill amortisation          0.0    0.0         0.0        0.0       0.0   Divestments                                           0.0      0.0
EBIT                           1.0    1.9         3.3        4.2       5.1   Financing cashflows
   growth over pcp          18.5% 101.7%       70.9%     26.1%     21.9%     Equity raised                                         0.0      0.0
Net interest expense                              0.2      (0.1)     (0.1)   Dividends paid                                      (1.3)    (1.7)
Pre-tax profit                                    3.2        4.3       5.2   Chg in loans                                          0.9      1.1
Tax                                               1.2        1.4       1.6   Other non-op flows                                    0.0      0.0
   Effective tax rate                          36.6%     34.0%     30.0%     Net chg in cash                                       2.2      3.0
Preference dividends                              0.0        0.0       0.0
Minorities                                        0.0        0.0       0.0
BNPE adjustments                                  0.0        0.0       0.0   Balance sheet ($m)
BNPE adj profit                                   2.0        2.8       3.6   Year ending Jun             1998     1999   2000   2001f    2002f
                                                                             Cash                                                 5.1      8.1
Reported profit (pre abn)                          2.0      2.8       3.6    Receivables                                          2.7      3.5
Abn / extra's (after tax)                        (0.7)      0.0       0.0    Inventories                                          0.0      0.0
Reported net profit                                1.3      2.8       3.6    Other                                                0.0      0.0
                                                                             Current assets                                       7.7     11.5
                                                                             Net PPE                                              0.1      0.2
Profitability ratios                                                         Investments                                          0.0      0.0
Year ending Jun              1998    1999        2000   2001f  2002f         Goodwill                                             0.0      0.0
EBITDA / sales (%)          17.8%   24.9%       29.4% 28.7% 27.3%            Other intangibles                                    0.0      0.0
EBITAg / sales (%)          17.5%   24.6%       29.1% 28.3% 27.0%            Other                                                0.0      0.0
EBIT / sales (%)            17.5%   24.6%       29.1% 28.3% 27.0%            Non-current assets                                   0.1      0.2
Return on assets (%)                           193.1% 164.5% 159.2%          Total assets                                         7.9     11.7
Return on equity (%)                           114.3% 63.5% 57.0%
Dividend cover (x)                                 3.2    2.0    1.7         Debt                                                  0.9     2.1
                                                                             Provisions                                            1.4     2.0
                                                                             Other                                                 0.2     0.2
Liquidity and leverage ratios                                                Total liabilities                                     2.5     4.3
Year ending Jun              1998    1999       2001f     2001f     2002f    Equity / reserves                                     2.9     2.9
Net debt / (cash) ($m)                           (2.8)     (4.1)     (6.0)   Retained profits                                      2.5     4.5
Debt / equity (%)                               0.2%     17.8%     27.9%     Total s/h funds                                       5.3     7.4
Net debt / equity (%)                             nmf       nmf       nmf    Minorities                                            0.0     0.0
Interest cover (x)                                nmf       nmf       nmf    Total funds emp.                                      7.9    11.7

* Relative to BNPE growth companies universe

                            Please read the disclaimer, warning and disclosure statements at the end of this document.
                                                   4      EQ UITY            RESE ARCH
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