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Interquest - Very Encouraging Results

By Steve Moore | Saturday 8 March 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.

Specialist IT recruitment group InterQuest (ITQ) has reported results for a 2013 year which saw improving trading and updated that “trading in January and February has been encouraging, especially in respect of recurring contract revenue and we look forward to the year unfolding with confidence”. 

For 2013 the company has reported an adjusted pre-tax profit of £2.25 million on net fee income up 6.2%, at £17.39 million, generating earnings per share of 4.8p, up from a prior year 3.5p. After £0.72 million of restructuring costs, a £0.75 million net working capital outflow, £0.85 million paid out in dividends and a net £4.54 million of acquisition spending, net debt increased by £4.61 million to £9 million (“the group continues to finance its activities through the utilisation of a confidential trade receivables finance facility. The facility limit is £15 million and the facility has a six month rolling notice period”). 

Year-end net current liabilities totalled £1.06 million, with there no non-current liabilities. A dividend of 2p per share is proposed to be paid on 17th April, with an ex-dividend date of 19th March, meaning an unchanged total dividend for the year of 2.5p per share. 

The company noted that “modest gains in net fee income somewhat mask the significance of the changes that helped to bring about this result” as it has continued to move its business more and more towards niche segments and higher margins - resisting “the temptations of the pack” to chase volume business and seeing improved margins for the fifth reporting period in a row. It added that “we have started 2014 with a contract book that is organically 10% higher than a year ago and with foundations in place to capitalise upon the market opportunity in 2014”. 

The shares have responded positively to the results announcement – currently trading at around 100p, which compares to the 88p offer price at which they were added to the Recovery portfolio on my Nifty Fifty site in November. House broker, Charles Stanley, is now forecasting earnings per share to increase to more than 8p in 2014 and towards 10.5p in 2015 with net debt reducing to £8.2 million, then £6 million. 

Although InterQuest notes that “challenges remain… not least margin compression in key accounts with large clients”, self-help measures implemented and a continuingly sugarcoated UK economic recovery should facilitate the expected progress and Charles Stanley also sees the potential upside I noted in my initial piece – commenting “a combination of its revised strategy and an improving economic outlook brings InterQuest’s ultimate goal of a ‘trade sale’ closer to fruition”.

There thus continues to look attractive value here – Charles Stanley is for now targetting a 125p share price but comfortably more would be attainable I suspect on a sale basis. And I am damn sure that this is exactly what Founder, chairman and major shareholder Gary Ashworth is targetting before Christmas. At worst a strong hold.

 The average gain on the tips Tom Winnifrith & Steve Moore have served up on their Nifty Fifty site is on an offer to bid basis with dividends included and with an average holding period of 8.125 months, 20.98% as at February 14th. To gain immediate access to their site and to their next share tip click HERE



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