By Tom Winnifrith | Friday 26 December 2014
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
One of my highlights of Christmas was a gathering of the friends of the woman I once referred to as the deluded lefty, that is to say the Mrs. I was ill so, having cooked for them, I retreated to bed with the cats, but coming down for a cup of tea I heard the most deluded of the lot of them (they are nearly all sociology lecturers) opine that she had “applied for research funding to study how black women are suffering in the recession.” Where does one start?
Firstly, she will get that funding and it is YOUR taxes that will fund this vital work. Secondly, you might point out that we are not in a recession so the whole thesis is fundamentally flawed but that will not stop this utter loon from securing funding from the grateful taxpayer which will produce a report concluding that the wicked Tory inspired recession has especially disadvantaged women of colour (you see I know the PC lingo off pat now) and that the taxpayer needs to invest (i.e. piss away more cash) to rectify this. We live in a mad world.
My point is that the UK is not in a recession. One of my ten macro themes for 2015 (HERE) is that UK GDP growth will be the strongest in Europe and among the strongest in the G8 and thus Steve Moore and I when tipping stocks as buys are looking for UK GDP plays. That brings me to recruitment business InterQuest (ITQ) at a 102p offer - up on the 88p offer at which we first tipped it on the Nifty Fifty.
The value opportunity is that InterQuest shares were weak in the run up to Christmas not because of weak trading but because having put itself up for sale no deal was done. The problem is chairman and founder Gary Ashworth.
That is to say the stumbling block was securing was Gary regards as a fair price, not that there is anything wrong with InterQuest. Most AIM casino chairman own sod all shares in the company’s they run so would have happily accepted any deal and banked a mega bonus for securing a deal. Gary owns almost 30% of InterQuest and so his interests are not that of a grubby bonus seeking corporate swine but those of a shareholder. He wants a fair price.
I know Gary well. He has a great track record on the AIM casino. A gritty northern chappie he will just go away, build up InterQuest both organically and via infill deals and I reckon that in twelve months’ time he will be selling the firm but not for anything less than 150p per share.
At 102p the market cap is £35 million and by the end of next year with no acquisitions debt will be £5 million and clearable within nine months. I was expecting earnings per share of c10p for 2014 and 12p for 2015 but the upbeat trading statement of just before Christmas makes me think that I am light on both numbers and so tentatively I am looking for earnings of 13.5p for 2015 so at 150p the PE is only just over 11. Mid-tier recruiters at the right point in the cycle often exit at 15 times or more so my targets are really not that ambitious.
InterQuest is almost entirely UK based in terms of customers. Its speciality is IT where demand is strong and its biggest customer is the FCA which – as we know – has an unlimited budget as it recruits the brightest and the best to fail completely to tackle financial abuse and crime in this country.
I regard the risks to my numbers as on the upside as Gary is helped by macro-headwinds ( as the economy grows he will have more demand to fill higher margin permanent as opposed to temporary placements) but also because he will execute a number of cute bolt-ons to bulk this company up for the 2015 trade sale. Buy at up to 108p with a 150p to sell target price.
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