Brief lull in financial screening volumes
Underlying demand for ClearStar’s tech-rich background & medical (MIS) screening services remains buoyant, as evidenced by its record orderbook and healthy pipeline – augmented by November’s ebullient US jobs report, where unemployment fell to a 50-year low of 3.5%.However as with many ‘industry disruptors’, there are occasional bumps along the road, with the Board saying today that Q4’19 “financial institution screening volumes [eg to multi-national banks] have been lower than previously anticipatedâ€. Due to “political uncertainty in the US & abroadâ€, along with industry “realignments†pushing work into 2020.
As such, we have pared back our 2019 revenue and adjusted EBITDA (pre SBPs) estimates to $23.0m (+14% vs $23.75m B4) and $300k ($700k) respectively - with the softer volumes only partially offset by strong growth in the lower margin MIS (+23%) division. Equally this adverse mix shift feeds through into 2020, where our numbers have also been trimmed to $26.0m (vs $26.6m B4) and $1,234k ($1,885k).
Similarly the valuation drops from 135p to 115p/share, albeit the stock continues to trade at a material discount to peers. In fact, investors should be aware that Silver Lake (private equity) acquired rival First Advantage last month at circa 3x EV/sales (ED est) vs ClearStar on 1.2x 2020 turnover - hence illustrating the potential upside.
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