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Buy Interquest at a 92p offer price

By Tom Winnifrith & Steve Moore | Monday 25 November 2013

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.

We tipped Interquest (ITQ) a couple of weeks ago at an 88p offer on our Nifty Fifty website. The offer is now 92p but the shares are still a buy. Here is what we wrote: 

Investment Case: The UK ‘economic recovery’ doesn’t look to have the firmest of foundations but with a general election now just 18 months away it is a safe bet that the government will do all they can to sugarcoat it at least until then. This is a likely positive for recruitment group InterQuest, with more than 90% of its business being in the UK. Together with recently implemented ‘self-help’ measures, the company’s prospects look positive and the rating - even after a positive year for the shares – is still likely undemanding. Therefore, at a current 92p offer price, the shares are a buy.

Operations: InterQuest is a specialist recruitment group providing contract and permanent recruitment services within niche disciplines in the UK and Southeast Asia. The group comprises specialist divisions covering a range of technology and analytical skill sets and operates across multiple industries with a significant presence and expertise in financial markets, public sector, not-for-profit and retail.

Management Incentive: The company’s founder and current Executive Chairman Gary Ashworth has worked in recruitment since 1980 and before founding the InterQuest Group in 2001, he was the founder of Abacus Recruitment, which was successfully floated on AIM in 1995 and sold in 1998. A Fellow and past President of the Institute of Employment Consultants, Ashworth’s remuneration in 2012 totalled £90k and he has 12,759,912 shares in the company (38.10%). 

CEO Mark Braund took up the role in April 2011 and is a former director of IBM (EMEA) as well as an experienced recruitment executive, with over 28 years in the industry. In 2012 he received a total remuneration package of £272k (including a £35k bonus) and has 487,103 shares in the company (1.45%).

New red hot penny share tip due out this afternoon on the brand new £5 a month share tip website Hot Stock Rockets. To access the site now ahead of that tip click HERE

Financials: September-announced results for the first half of the 2013 calendar year showed an adjusted pre-tax profit of £1.21 million on Net Fee Income 2.3% higher than in the corresponding 2012 period, at £8.48 million, generating earnings per share of 3.4p, up from 2.2p. This saw a maintained interim dividend of 0.5p per share paid, with the company ending the period with net debt of £5.73 million, though net current assets of £4.58 million and no non-current liabilities. 

The company noted the first half performance reflected its targeting of critical roles that are difficult to fill and steps taken to unify its brands and to consolidate and streamline its processes and systems, which “should continue to deliver improved profitability in future reporting periods”.

Risks: The recent interim results statement noted that “challenges remain, not least margin compression in key accounts with large clients” and that “we remain a people business and rely very much on the development and quality of our own talent to succeed”. These reflect risks in terms of the competitive pressures of this industry and a reliance on retaining key personnel. The strategy being implemented of targeting niche areas within the company’s areas of expertise and heavily focusing on staff development should though help mitigate. Other potential risks include legislative changes further increasing the regulatory burden across the industry.

Valuation: For the full-year, house broker Charles Stanley is forecasting a pre-tax profit of £2.1 million (up from 2012’s £1.5 million), though this remains well down on numbers previously achieved and earnings per share of 4.7p are forecast to increase towards 6p next year and 8p the year after. There is also a dividend (2012: 2.5p per share) of which the full-year payout is anticipated to be increased to 2.05p, with the total payout then increasing from this year’s 2.55p to more than 2.8p next year and towards 3.1p the year after. These numbers suggest a price-earnings multiple of 19.6x, falling to 15.3x and 115x, with a dividend yield of 2.8%, rising to 3.1% and 3.4%. 

A continuingly sugarcoated UK economic recovery and the changes the company has itself implemented look to offer upside scope to the numbers and there is also potential upside in Ashworth at some stage seeking to realise value via a sale of the company as he did with Abacus previously - on  a takeout basis I'd look for at least 160p per share. Therefore, at a current 92p offer price, the shares are a buy.

New red hot penny share tip due out this afternoon on the brand new £5 a month share tip website Hot Stock Rockets (where Tom & Steve are 2 of the 8 person team). To access the site now ahead of that tip click HERE

To access Tom & Steve’s premium Nifty Fifty website where this tip first appeared click HERE





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