TOP IDEAS: Caldwell Partners
International’s (TSX: CWL) merger with IQTalent Partners and its proprietary
talent search automation platform marks a transformational shift. A re-rating
of the Company’s stock value, 165% higher, is warranted. Investorfile Top Pick
share price accumulation target of $1.30 for Caldwell Partners International
Inc. was reached on July 18, 2014. For the record, we do not revise share price
targets for our Investorfile Top Ideas - Small Cap Value Stocks. We have
positioned our blog to be one of the first providers of a pragmatic perspective
of a small cap company's stock's potential worth, where there may be uncovered
value that has been largely overlooked by the investment community.
In our last
blog post on Caldwell Partners, we were of the opinion that there is a strong
incentive from the new board leadership to unlock shareholder value in this
Company (See: Caldwell
Partners has more than doubled in size and has new Board leadership.)
Then, last month, in a blog
post, we cited that Caldwell’s
operations are showing signs of a strong recovery and there is opportunity for
growth, both internally and through acquisitions in the near-term. In
hindsight, given that blog post, (See: Investorfile
Top Picks for 2021 includes a perennial winner) we could not have
been more right, and the stock price is up almost 50% since that time.
Caldwell Partners International Inc. (TSX: CWL - C$1.32)
has a built a strong reputation as a premier executive search firm whose focus
is on the high end of the employment search market. This includes CEOs, CFOs,
presidents, boards of directors and senior level positions, where an executive
search is seen as an important business investment rather than an expense. The
Company generates the majority of its business in the USA but has offices across North America, Europe and Asia-Pacific.
recently, the Company has embarked on a transformation to augment its
traditional executive search business with investments in technology-powered
talent recruitment. This has led to Caldwell Partners' recent purchase of
IQTalent Partners Inc., based in Nashville,
Partners (IQPT) is a talent acquisition and executive search firm offering
consulting, candidate sourcing, candidate research and full life cycle
recruiting to its clients. The
IQTP brand’s focus is to augment in-house talent acquisition teams, leveraging
their hourly consulting fee model and their newly launched IQTalent Exchange.
IQTalent Exchange is a proprietary platform powered by Artificial Intelligence (AI)-driven sourcing technologies, which provides automation and efficiency
to the passive talent search
process. Automated talent
search results are curated
and enhanced by IQTP research teams, deriving candidate lists as a managed
service to their clients at a modest fixed fee. To date, IQTP has partnered with more than 300
corporations, from Fortune 500s to high-tech start-ups.
IQTP has approximately 150 employees, is profitable and is growing very quickly.
According to Caldwell’s CEO, the
Company’s merger with IQTP creates a technology-powered talent acquisition firm
specializing in recruitment at all levels, driving growth and increased
profitability for both. The stated vision for the two businesses working
together is for IQTP to be a constant presence for clients providing recurring
talent acquisition support, with Caldwell
engaged for higher end retained executive searches not done by the in-house
teams. This provides a seamless integration into the talent acquisition needs
at all levels.
estimates that the two companies together will generate a 12-month forward revenue
run rate of about C$90 million.
Caldwell Partners' revenue growth and profitability over the last several years
for its traditional executive search business, the stock price of Caldwell
Partners had continued to trade at valuation equal to about 30% of annual
sales. This is a very low revenue multiple and is well below its peer group
which are mostly larger recruitment firms.
merger with IQTP, we feel strongly that the Company’s
historic market valuation metric is about to change and rather dramatically at
that. Caldwell’s Management and Board have given the signal that more growth
for the Company is forthcoming from acquisitions that are technology-based
within the industry. As such, we think Caldwell Partners will strategically
morph into "technology play” in talent search automation and support.
notion, it is our opinion that the Company’s stock valuation will "re-rate”
under this technology transformation and, therefore, the market will command a
stock multiple of at least one times annual revenue, which the share price will
gravitate to in the near-term. Based on Caldwell’s
current capital structure, this multiple implies a stock price of about C$3.50
per share, or 165% upside from its current trading levels.
the Company reported its fiscal Q1 results for 2021 (which excludes the
contribution of IQTalent Partners). We note there was a significant rebound in
its financial results. Caldwell Partners reported quarterly revenues of C$18.1
million, net income of C$936 thousand and earnings-per-share of about C$0.05.
maintains a very strong balance sheet with cash holdings and is debt-free.
Partners International has approximately 25.5 million shares outstanding.
Company’s website: www.caldwellpartners.com
ownership disclosure: TSX: CWL - YES
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
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Investorfile.com 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.
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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