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Caldwell Partners International: US expansion pays “dividends” for small cap value investors
Posted by: Gerry Wimmer

TOP IDEAS: Caldwell Partners International's (TSX: CWL) stars and stripes strategy drives sales and profits for the fastest-growing executive search firm in North America.

The Caldwell Partners International Inc. (TSX: CWL - $0.74) has made a big transformation from a respected Canadian brand to an executive search company with a strong North American presence. Two years ago, Caldwell Partners had 13 partners and three domestic offices. Today the Company has 34 partners plus nine additional US offices and 70% of total revenues are generated from its US operations. Now Caldwell Partners holds the distinction of being the fastest-growing executive search firm in North America.

As one of North America's premier executive search firms, Caldwell Partners' clients include a broad range of international and multinational businesses and public organizations operating in a variety of industries. In providing its executive search consultancy services, the Company typically deals with the senior management or boards of directors of its client base for project assignments to recruit capable executives externally for senior level positions.

The strategic decision in 2009 to establish operations in the United States has more than doubled Caldwell Partners revenue-producing potential to about $34 million annually. In fiscal 2012, much of its investment in infrastructure to support the US operations has been completed; therefore, as revenues grow, the Company will continue to leverage these costs.

The Company believes its American operations are poised to continue to grow and, in return, this is expected to drive Caldwell Partners' profitability. There is strong evidence that this is now occurring. For fiscal 2012, the Company has turned profitable and, in Q3, Caldwell Partners earned $711K in net earnings or 0.04 per share. The Company's board has recently declared a new quarterly dividend of 1.5 cents per share for its shareholders.

To complement the earning potential is the Company's liquidity position and capital structure. As of May 31, 2012, Caldwell Partners held over $6.5 million in cash and investments with no debt, and the Company had only 16.9 million shares outstanding.

For small cap value investors, the success of Caldwell Partners' US expansion strategy presents an immediate investment opportunity. By annualizing the Company's most recent quarterly results, we have determined that shares of Caldwell Partners trade at Enterprise Value (EV) to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio of about 2, which is very inexpensive. Therefore we recommend that Caldwell Partners stock to be accumulated up to $1.30 per share which is equivalent to EV to EBITDA ratio of 5.5 times. This target is conservative as it assumes nominal growth. As a bonus for investors, the shares of Caldwell Partners currently trade at indicated dividend yield of 8.1%.

Headquartered in Toronto, Caldwell Partners' is ranked as the ninth-largest executive search firm in North America. Korn/Ferry International, the largest player in this industry, is an active consolidator of mid-sized executive search firms. Caldwell Partners is a potential takeover target.

Two things to note: the Company has issued a Notice of Intention to buy back up to 845,000 of its common shares for cancellation and two institutional investors and the Company's founding shareholder combined own approximately 53% of Caldwell Partners' outstanding shares.

The Caldwell Partners International website:

Author ownership disclosure: TSX: CWL - Long

Read Disclaimer:

This article is for informational purposes only. This article is based on the author's independent analysis and judgment and does not guarantee the information's accuracy or completeness. The information contained in this article is subject to change without notice, and the author assumes no responsibility to update the information contained in this article. The information contained within this article should not be construed as offering of investment advice. Those seeking direct investment advice, should consult a qualified, registered, investment professional. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock. is not engaged in an investor relations agreement with The Caldwell Partners International Inc. nor has it received any compensation from The Caldwell Partners International Inc. for the preparation or distribution of this article.

The author of this article has acquired and may trade shares of The Caldwell Partners International Inc. through open market transactions and for investment purposes only.

Posted by: Next Terra
I really like it. Enjoyed your post as always. Thanks for Sharing


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Hi Gerry, Your philosophy is focused on principles that have been shown to produce above average results over time and your record has clearly proven that. Congratulations on a great blog and thank you for the hard work that you do in sharing and updating your ideas; it is much appreciated.