Deeply undervalued, high growth stock
Occasionally even professionals lament about ‘the one that got away’. However investing is a bit like surfing, ‘you don't need to catch all the big waves to still have a great time’.Luckily for investors, the ClearStar ship has not sailed yet, despite the shares (at 49p) trading at a 56% discount to our 115p/share valuation. This unjustified gap between price (ie what you pay) and value (what it is worth) is likely to close at some point. Especially as the firm continues to deliver new business wins, double digit organic growth, improving operating leverage and higher margins.
Indeed today, it announced another significant contract win (min $0.4m in 2020). This time with a leading facilities management (FM) group, to provide screening for people entering its 120,000 locations across North America serving numerous industries.
Fine, but what about the numbers? Well, we reckon 2019 results were in line with expectations - $300k of adjusted EBITDA (pre SBPs) on $23.0m of revenues - and hence make no change to our forecasts. An estimated 72% of turnover is now derived from CLSU’s two strategic growth engines (ie Medical & Direct), that together expanded by >26% (all organic).
Moreover looking ahead, this latest customer endorsement, alongside ongoing pipeline conversion, generates robust visibility, with the company anticipated to be cashflow neutral/positive in 2020, on sales & EBITDA of $26.0m (13.0% LFL) & $1,260k respectively.
Add all this up, and we think ClearStar remains a deeply undervalued, high growth stock - priced at a compelling 1x 2020 EV/sales vs 3x for recent M&A activity.
Ideagen is a supplier of information management software to regulated industries. Co. supplies Governance, Risk and Compliance solutions principally to the Healthcare, Transport, Aerospace & Defense, Life Sciences, Manufacturing and Financial Services sectors.
Wolters Kluwer operates through four divisions: Health is a global provider of information for medical and health professionals; Financial & Compliance Services is a U.S. provider risk management, compliance, finance, and audit professionals the services they need to optimize risk and business performance, and ensure compliance with local, regional, and global regulation; Tax & Accounting is a provider of tax, accounting, and audit information, and services; and Legal & Regulatory provides customers with expert content, software, and services in the areas of law, business, and regulatory compliance in Europe, North America and Asia Pacific.
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