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By Tom Winnifrith & Steve Moore | Monday 5 December 2016
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.
A latest “Trading update” announcement from recruitment group InterQuest (ITQ) saw the shares fall to to circa 30p although with Jim Mellon upping his stake they are now 35p. We have had a long chat with the company’s Chairman Gary Ashworth.
After a profit warning in June, this further share price fall comes with the latest update including that the company now expects full-year net fee income and earnings to be still further behind expectations. The statement includes “there have been lower levels of demand in the public sector compared to 2015 and a small number of large value placements have been delayed into 2017”, but this further profit warning emanates from the company's ECOM London-based digital division.
Acquired three years ago, the September interims noted on this division “a root and branch reform has been necessary” - and we understand the early 2016 commenced CEO of the InterQuest group, Chris Eldridge, has personally led the implementation of significant cost savings and restructuring.
Despite such challenges, we also understand cash generation has been strong – with net debt forecast to be reduced from £9.9 million at the half-year stage to around £7 million by the year-end – and that the digital technology markets the company serves continue to offer encouraging growth prospects.
Gary Ashworth emphasised that he is mainly a shareholder too, with a more than 33% interest, and his determination to see things right here. We apologise for the particularly lousy performance since June (when the shares were 80p+), but the market cap is now little more than £11 million and the CEO and CFO team have only been in place for less than a year. We believe they are taking strong action and that the shares could merit a small buy for recovery at this juncture.
However, we also understand that the recent track-record will mean news of some consistent more positive delivery will be needed to regain the faith of many. We apologise for this share tip but are keeping the faith. At the very worst, at the current price, the stance is hold.
This article first appeared on the Nifty Fifty website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tips from Tom & Steve and ahead of a new shorting idea from Lucian all out shortly click HERE
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