Impellam – 750% ahead and more to come?

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Today I give my moronic bulletin board critics – notably mad and bad Bob Burnard –  the opportunity to comment on my September 2009 recommendation of shares in AIM listed staffing and outsourced support services company Impellam Group (LSE:IPEL). I first recommended shares in the company, which primarily operates in the UK and North America (although it has smaller operations in Australia, Ireland, New Zealand and mainland Europe), at 40p (a level they have not traded below since) – and they currently trade not too far off the highs since, at 340p. This represents a 750% capital gain in little more than three years – not too much of a disgrace I would argue. Now though the question is what to do from here? In the following I take a renewed look at the investment proposition…

Impellam’s most recent report on trading was its release of interim results to end June. These showed an underlying pre-tax profit of £15.1 million on revenue 7.6% higher than in the first half of calendar 2011, at £590.9 million. Earnings per share were 27.6p, up from 25.4p, with net debt at period end totalling £12.9 million. However, net current assets totalled £33.7 million, which compared with non-current liabilities of £16.2 million. The performance and balance sheet position saw the company announce the payment of its first cash dividend – of 7p per share.

The results benefitted from strong performances from the company’s ‘Medical & Government’ services and North America staffing businesses, which both increased operating profit on increased revenue. The UK staffing business also increased revenue but operating profit remained unchanged as economic conditions compressed margins and adversely affected the permanent placement market. This business is now particularly focusing on up-selling higher-value offerings. The ‘Technical Solutions’ business also eeked out a revenue increase and revenue was maintained at ‘Carlisle’ (support services) but these both saw profit declines. However, Impellam respectively noted that “there are recent signs that the business initiatives put in place are starting to leverage the brands” and that “initiatives have been put in place to address the cost base and new business platforms are being actively pursued”.

 The economic climate is clearly a significant challenge for a business such as this – the company noted in its results statement “tough trading environments in both the UK and North America”. However, in the face of this and whilst undergoing a restructuring (“to align its brands into clear market-facing businesses” and which is expected to complete by the end of the financial year), the interim numbers show strong resilience and of particular note was that conversion of gross profit into underlying operating profit was increased to 18.4%, from 17.8%. This demonstrates a more efficient business to face the current economic conditions and should mean the company better benefits from gradual macro economic recovery in the longer-term.

In the near-term, macro economic conditions do concern me somewhat with regards Impellam. However, the company looks to be putting in place a strong platform to facilitate long-term growth and on current forecasts, with the shares at 340p, the prospective earnings multiple is around 5. Being cautious, you may now wish to top-slice (i.e. sell half your holding to guarantee a significant profit) but the lowly rating is sufficient for me to suggest a stake be retained here as it means there is strong scope for continued delivery on expectations to be rewarded with further meaningful share price appreciation.

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Comments

  1. Bob says:

    Tom

    I eagerly await NXS review and many others. lol

  2. Bob.

    Of the 240 odd tips I produced on t1ps over 12 years c 66% went up and just under a third down. The average gain was 42% over an average of 36 months

    As you have seen I am covering all live tips good and bad here & elsewhere ( go to http://www.tomwinnifrith.com for all output). If you get kicks out of bad ones and are hurt by bad ones overall you will suffer pain.

    Your obsessive behaviour is getting worse – it is time to up the dosage again mate

    Tom

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