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 2021.

Investorfile's 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.

Just 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, Tennessee .

IQTalent 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.

Investorfile estimates that the two companies together will generate a 12-month forward revenue run rate of about C$90 million.

Despite 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.

Given its 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.

With that 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.

Last week 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.

The Company maintains a very strong balance sheet with cash holdings and is debt-free.

Caldwell Partners International has approximately 25.5 million shares outstanding.

The Company’s website: www.caldwellpartners.com

Author ownership disclosure: TSX: CWL - YES

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.

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. for the preparation or distribution of this article.