TOP IDEAS: Caldwell
Partners International (TSX: CWL) is posting a record year which could lead to
a dividend increase and takeover upside. To date, owning the stock has returned
281% as a small cap investment.
Investorfile's share price accumulation target of $1.30 for
Caldwell Partners International Inc. was reached on July 18, 2014. For the
record, we do not revise share price targets for our Investorfile Top Ideas -
Small Cap Value Stocks. We have positioned our blog to be one of the first
providers of a pragmatic perspective of a small cap company stock's potential
worth, where there may be uncovered value that has been largely overlooked by
the investment community.
There have been naysayers over the years that are against
buying shares in Caldwell Partners. But the fact is, since this blog first
recommended the Company’s shares as one of Investorfile’s Top Ideas (See: Caldwell
Partners International: US expansion pays "dividends” for small cap value
investors), the stock has returned to date 281% through a combined
steady flow of dividend payouts and capital appreciation.
We say the return on this small cap investment will
continue to grow.
Caldwell Partners International Inc. (TSX: CWL - $1.18) is
a premier executive search firm whose focus is on the high end of the
employment search market; for CEOs, CFOs, presidents, boards of directors and
senior level positions, where an executive search is seen as an important
business investment rather than an expense. Caldwell Partners' executive search
expertise extends from offices in Canada
, USA and the UK, with affiliates throughout Latin American
and New Zealand
serving a multiple of major industries, including Financial Services,
Technology, Industrial, Insurance, Healthcare, Consumer, Media and Government.
Caldwell Partners’ revenues are primarily generated from
executive search fees that it shares with its partners in the firm, in addition
to licence fees as a percentage of revenues earned from its affiliates.
Fiscal 2018 is turning out to be a banner year.
The outstanding third quarter results for Caldwell Partners set an
all-time record for quarterly revenue at $18 million, which led to net income
of $987,000 and $0.05 per share in earnings. For the first nine months of
fiscal 2018, the Company reported revenues of $47.8 million and net income of
$1.7 million, which is up significantly from last year. The business momentum
for Caldwell Partners should continue into its fourth quarter, according to
Management comments, which should lead to exceptional annual results for fiscal
2018 when reported later this year.
No doubt, the Company’s current operations are very strong.
This is the result of a number of factors. First,revenue growth has been
driven by targeted executive search partner hires over the past two years.
Search volumes and average search fees per partner have risen. Second, Caldwell’s US
operations (which make up two-thirds of its business) are benefiting from the
tailwinds of a robust US
economy. Third, after several years of investment, the Company’s UK office is no longer losing money and is now
positioned to contribute to Caldwell’s
The Investorfile blog continues its long-standing
recommendation that, for small cap investors, Caldwell Partners’ stock is a
value-wise investment opportunity up to a target price of C$1.30 per share. At
the current trading range, and by most metrics, this stock is still very cheap.
Based on what we expect for the upcoming fiscal Q4 and annual results, the
shares today trade only at about 10 times earnings and less than five times
Enterprise Value (EV) to EBITDA.
The stock also pays a generous $0.02 per quarter dividend, which
currently yields about 6.8%. We are going on record and predicting that Caldwell
Partners’ Board of Directors will raise its quarterly dividend payout later
this year. This could be a catalyst for a higher stock price.
In the future, the possibility of a takeover or going
private transaction for this Company does exist. Fair value for a profitable
executive search firm is about one-time annual revenues. Based on current
revenues this implies a valuation metric in the range of $3.00 per share which
is a very significant premium to the current stock price.
Of note, Darcy Morris, founder and CEO of Ewing
Morris & Co. Investment Partners, has joined the board of Caldwell
Partners. Ewing Morris, a Toronto-based investment manager, recently acquired
over 2 million shares of Caldwell
stock (at about $1.20 per share) and now owns close to 10% of the Company for
its managed funds.
Caldwell Partners maintains a very strong balance sheet.
With unencumbered cash holdings of about $8.65 million and no debt, the Company
has the financial capacity to make an acquisition or expand otherwise.
The Company has approximately 20.4 million shares
The Caldwell Partners International website: www.caldwellpartners.com
Author ownership disclosure: TSX: CWL - YES
This article is for informational purposes
only. This article is based on the author's independent analysis and judgment
and does not guarantee the information's accuracy or completeness. The
information contained in this article is subject to change without notice, and
the author assumes no responsibility to update the information contained in
this article. The information contained within this article should not be
construed as offering of investment advice. Those seeking direct investment
advice, should consult a qualified, registered, investment professional. This
is not a direct or implied solicitation to buy or sell securities. Readers are
advised to conduct their own due diligence prior to considering buying or
selling any stock.
Investorfile.com is not engaged in an
investor relations agreement with The Caldwell Partners International Inc. nor
has it received any compensation from The Caldwell Partners International Inc.
for the preparation or distribution of this article.
The author of this article has acquired and may
trade shares of The Caldwell Partners International Inc. through open market
transactions and for investment purposes only.