TOP IDEAS: Caldwell Partners International's (TSX: CWL) stars and stripes strategy drives sales and profits for the fastest-growing executive search firm in North America.

The Caldwell Partners International Inc. (TSX: CWL - $0.74) has made a big transformation from a respected Canadian brand to an executive search company with a strong North American presence. Two years ago, Caldwell Partners had 13 partners and three domestic offices. Today the Company has 34 partners plus nine additional US offices and 70% of total revenues are generated from its US operations. Now Caldwell Partners holds the distinction of being the fastest-growing executive search firm in North America.

As one of North America's premier executive search firms, Caldwell Partners' clients include a broad range of international and multinational businesses and public organizations operating in a variety of industries. In providing its executive search consultancy services, the Company typically deals with the senior management or boards of directors of its client base for project assignments to recruit capable executives externally for senior level positions.

The strategic decision in 2009 to establish operations in the United States has more than doubled Caldwell Partners revenue-producing potential to about $34 million annually. In fiscal 2012, much of its investment in infrastructure to support the US operations has been completed; therefore, as revenues grow, the Company will continue to leverage these costs.

The Company believes its American operations are poised to continue to grow and, in return, this is expected to drive Caldwell Partners' profitability. There is strong evidence that this is now occurring. For fiscal 2012, the Company has turned profitable and, in Q3, Caldwell Partners earned $711K in net earnings or 0.04 per share. The Company's board has recently declared a new quarterly dividend of 1.5 cents per share for its shareholders.

To complement the earning potential is the Company's liquidity position and capital structure. As of May 31, 2012, Caldwell Partners held over $6.5 million in cash and investments with no debt, and the Company had only 16.9 million shares outstanding.

For small cap value investors, the success of Caldwell Partners' US expansion strategy presents an immediate investment opportunity. By annualizing the Company's most recent quarterly results, we have determined that shares of Caldwell Partners trade at Enterprise Value (EV) to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio of about 2, which is very inexpensive. Therefore we recommend that Caldwell Partners stock to be accumulated up to $1.30 per share which is equivalent to EV to EBITDA ratio of 5.5 times. This target is conservative as it assumes nominal growth. As a bonus for investors, the shares of Caldwell Partners currently trade at indicated dividend yield of 8.1%.

Headquartered in Toronto, Caldwell Partners' is ranked as the ninth-largest executive search firm in North America. Korn/Ferry International, the largest player in this industry, is an active consolidator of mid-sized executive search firms. Caldwell Partners is a potential takeover target.

Two things to note: the Company has issued a Notice of Intention to buy back up to 845,000 of its common shares for cancellation and two institutional investors and the Company's founding shareholder combined own approximately 53% of Caldwell Partners' outstanding shares.

The Caldwell Partners International website: www.caldwellpartners.com

Author ownership disclosure: TSX: CWL - Long

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