Report

Valuation raised due to accelerating growth

Founded in 1995 and floated at 57p/share in July’14 (raising £8.8m gross), ClearStar (CLSU) is a pioneering technology provider to the c. $4 billion global job screening (60% of H1 sales) and drug/medical testing (40%) markets.

Today’s H1’18 results appear very encouraging: sales climbed 10.8% to $9.9m ($8.9m LY) - representing their highest level ever for a 6 month period, with LFL growth being significantly faster than the broader market. Here, the standout performers were MIS (up +27% to $4m) and Direct (+22% to $2.8m: incl 15% of MIS). Together, these two divisions now account for 62% (or $6.1m) of turnover vs 56% 12 months ago – and are forecast to jump to 67% in H2 and 70.3% next year.

Consequently, with almost 2/3rds of the Group expanding at >22%, it does not take a 1st class honours degree to realise that good things are about to happen. What’s more, based on the normal flow of repeat business, augmented by recent client roll-outs, on-boarding and planned implementations, revenue visibility for this year and next looks excellent.

In fact, irrespective of some channel attrition, we envisage total H2’18 sales will advance 12.9%, hitting our FY target of $19.9m - and then leap by another 14.6% in 2019 to $22.8m and 15.9% in 2020.

Similarly, alongside tight cost control & cash management - re: H1 opex flat at $6.3m YoY, and OCF +$283k ($323k LY) - profits have reached a major inflexion point too. The firm posting its first positive EBITDA in the period ($45k vs -$235k: post SBPs), and we predict, will ultimately push EBIT margins from -6.3% this year to 19.3% by 2025 – in line with industry averages of c.20%-25%

Therefore in terms of the numbers - based on our DCF modelling, a range of benchmarks and a 12% discount factor - we are upgrading our valuation from 100p to 120p/share – or >50% above the 78p price, but still only equivalent to 1.5x 2022 EV/sales.
Underlyings
EQUIFAX INC.

Equifax Inc. is a provider of information solutions and human resources business process outsourcing services for businesses, governments and consumers. The company's services are based on databases of consumer and business information. The company uses statistical techniques, machine learning and proprietary software tools to analyze all available data, creating insights, decision-making solutions and processing services for its clients. The company also provides information, technology and services to support debt collections and recovery management. Additionally, the company provides payroll-related and human resource management business process outsourcing services in the United States of America.

FAIR ISAAC CORP

Fair Isaac is a provider of analytic, software and data management products and services. The company's segments are: Applications, which includes pre-configured decision management applications designed for business problem or process, such as marketing, account origination, customer management, fraud, collections and insurance claims management; Scores, which includes its business-to-business scoring solutions and services, its business-to-consumer scoring solutions and services including myFICO? solutions for consumers, and associated services; and Decision Management Software, which is composed of analytic and decision management software tools and the company's FICO? Decision Management Suite.

Fiserv Inc.

Fiserv is a provider of financial services technology. The company provides account processing systems, electronic payments processing products and services, internet and mobile banking systems, and related services. The company's segments are: First Data, which provides merchant acquiring, e-commerce, mobile commerce, and other business solutions; Payments and Industry Products, which provides electronic bill payment and presentment services, internet and mobile banking software; and Financial Institution Services, which provides financial institutions with account processing services, item processing and source capture services, loan origination and servicing products, and cash management, among others.

GB Group PLC

GB Group is engaged in the provision of identity data intelligence services. Co. has two operating segments: Identity Proofing, which provides electronic ID Verification services for combating ID fraud, money laundering and under-age gambling, ID Employ & Comply services for employee authentication and screening, and ID Fraud & Risk Management services; as well as Identity Solutions, which provides ID Registration, ID Engage and ID Trace & Investigate software and services that provide consumer information and facilitate understanding, targeting and retention of profitable consumers. Between them, the segments have six complementary lines of business including ID Verification and ID Engage.

Ideagen

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.

Insperity Inc.

Insperity provides a range of human resources (HR) and business solutions. The company's HR services offerings are provided through its Workforce Optimization? and Workforce Synchronization? solutions, which encompass a range of human resources functions, including payroll and employment administration, employee benefits, workers' compensation, government compliance, performance management, and training and development services, along with its cloud-based human capital management platform, its Insperity Premier?. In addition to its Professional Employer Organization HR Outsourcing solutions, the company provides Workforce Acceleration?, a payroll and human capital management solution.

TransUnion

TransUnion is an information and insights company. The company provides consumer reports, actionable insights and analytics such as credit and other scores, and decisioning capabilities to businesses. The company has the following reportable segments: United States Markets, which provides consumer reports, actionable insights and analytics such as credit and other scores, and decisioning capabilities to businesses; International, which provides services similar to its United States Markets segment to businesses in select regions outside the United States; and Consumer Interactive, which provides solutions that help consumers manage their personal finances and take precautions against identity theft.

Provider
Equity Development
Equity Development

​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.

Analysts
Paul Hill

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