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InterQuest - More positive News

By Tom Winnifrith | Monday 12 November 2012


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.


I wrote a bullish update last week on specialist IT recruitment group, InterQuest (ITQ) with the shares at 44p. It is thus pleasing to see them currently 3.4% ahead today at 45.5p following an announcement of an out of court settlement with the vendors of Contract Connections Ltd, which InterQuest acquired in June 2011 for £4 million. The following explains the situation and why shares in InterQuest continue to look to represent a decent long-term play.

InterQuest launched a claim against the vendors of Contract Connections after a major client of the acquired business terminated its contract less than two months after the acquisition had gone through – noting the client was withholding £0.6 million, though that the termination was not considered material to the group’s overall future prospects (reducing the number of contractors on assignment by approximately 40 out of a total in excess of 1,200). On 23rd December, InterQuest announced it had issued formal notice of a warranty claim against the vendors of Contract Connections for £3.84 million, excluding interest and costs.

Today’s announcement should bring this episode to a close - £1 million being repayable to InterQuest by 7th December, with the settlement “reached on the basis that the vendors of Contract Connections Ltd made no admission of liability or of wrongdoing”. InterQuest Chairman ( and 38% shareholder), Gary Ashworth, noted “this has been an unwelcome distraction on management time and we can now focus entirely on delivering our strategy which will see InterQuest emerge as a broader and stronger IT recruitment business”. This is, as noted in my recent update, as alignment is being sought with sectors of the market which are considered to provide increased opportunities for future growth – this has seen, for example, the development of a first overseas office in Singapore and a focus on higher value contracts in contrast to higher volume, low margin sales.

The cash will add to a balance sheet which featured net debt of £6.38 million, though a net current asset position of £3.15 million and just £69,000 of non-current liabilities as at the 30th June 2012 half-year stage. During that period an adjusted pre-tax profit of £932,000 was achieved – which together with the future growth prospects here makes a present market cap of £15.1 million not look particularly aggressive. Also offering a decent dividend stream ( I reckon that the yield is a safe 4.4%) and that the shares trade on a calendar 2013 price earnings ratio of just 5.2, this is not a red hot penny share to race away but looks to remain a decent long-term buy at current levels.

Libertarian investment writer Tom Winnifrith writes extensively for a number of US and UK financial websites. All of that free material appears on his own blog, which also carries his extensive original non financial material, at TomWinnifrith.com – for alerts on all Tom’s writings follow him on twitter at @tomwinnifrith

Tom’s premium share website The Nifty Fifty was launched on October 28th 2012. Having created and run the t1ps website for 12 year his average gain per tip there was 42.7% (over 241 tips) with an average holding period of 36 months. His new website promises more of the same – for immediate access click here

 



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