12% LFL growth drives record H1 sales
ClearStar (CLSU) is a leading technology provider to the multi $billion job screening (65% of 2016 sales) and drug/medical testing (35%) markets. The firm, head-quartered in Georgia (US), employs ~90 staff; and in 2016 conducted 7.8m screens (+8% YoY) on >2.3m individuals across >20k businesses, delivering turnover of $16m (~95% US).Circa 90% of turnover relates to ‘repeat’ everyday background/employment and drug/alcohol screening tests (run-rate >8m pa). Better still, retention is an impressive 90% - which when added to the natural flow through of recently signed deals, the ‘on-boarding’ of existing clients, and today’s ‘bang in line’ interims – means there is >95% and >85% respectively of revenue cover for this year ($17.8m) and next ($19.8m).
This top line predictability brings with it 40%+ EBITDA drop through rates, which should propel the company into the black in H2’18, along with being cashflow positive. Consequently to us, trading on a modest 1.3x CY EV/sales, the stock looks cheap, and should (in theory at least) respond favourably, as more investors begin to appreciate the double-digit organic growth, positive operating leverage, scalable business model and annuity type income. Rare qualities indeed in an increasingly uncertain world.
For the 6 months ending June, turnover was up 12% LFL to a record $8.9m (vs $8.0m H1’16 and $8.1m H2’17) with EBITDA losses declining 20% to -$165k (vs $208k LY). Divisionally, Direct H1 revenues jumped 20% to $2.3m reflecting buoyant conditions in transportation (eg UniGroup) and domiciliary care, while Medical Information Services (MIS) climbed 15% to $3.1m helped by the roll-out of the blue ribbon Intellicentrics contract, secured in Mar’17.
In 2018, we are pencilling in EBITDA of $0.9m on turnover of $19.8m - rising to $22.1m and $1.9m in 2019, and $43.5m and $11.0m (margin 25%) by 2025 (see below). Our DCF analysis values the stock at 90p/share, using a range of multiples, discounting back at 12% and adjusting for cash.
ClearStar is a technology and service provider engaged in the services to the background check industry, supporting background screening companies, employers and employees with their recruitment and employment application decisions. Co. provides employment intelligence to its clients through a suite of IT applications for day-to-day use in their business.
Equity Development enables companies to become better understood and supported by investors. Since our launch in 1996 we have consistently focused on helping our clients improve their communication and relationships with both existing and potential shareholders. Our clients have come from a wide variety of sectors and domiciles, are both private and quoted and range in size from micro-cap to $multi-billions. We offer free access to company research notes written by experienced analysts. These notes include detailed forecasts, financial models and a fair value. We host regular Private Investor Forums at which investors have the opportunity to hear company directors present, and to ask questions. These are free to attend. We broadcast live Webinars with company management that include active Q&A. We also make the recordings available online. We arrange face to face meetings between private investors and company management. We are active users of Twitter, commenting daily on company news, share price moves, Directors’ Dealings, Equity Development Research Notes & Events.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.