The final results appear very strong. The particularly interesting points for me are:
- despite just less that half the revenues coming from outside the UK, and so currency movement being against them, they have managed very strong growth. So underlying growth is even higher
- cash flow continues to be very strong and they have no long term debt
- strong profit growth, despite the development costs of Filefinder 8
- given the guidence for a 2 times div cover - this should put them on a 4% yield
- they are expanding outside of the executive search market into general corporate sales
- they see considerable growth from emerging markets
- order intake in Jan and Feb is 32% ahead of the same period last year
The main issue is how robust the business model/quality of product is versus peers (Bonds International is the main UK competitor and there is also an unlisted US competitor) and the fact that 2/3rd of current revenue is from one-off projects.
But the results put them:
- on a historic PE of around 12 (less if you adjust for the net cash position).
- prospective PE of less than 10 is you think they can manage more than 20% growth this year
- historic growth is over 40% and they are upbeat going forward
- a very high ROE
- profit margins of around 20%
(based on current 140p offer price)
Bond International is on a historic PE of 18 and prospective 13 - for similar levels of growth - actually higher prospective growth according to the 20% growth assumption I make for DSG).
Eagle-eyed readers of the final results will note the discrepancy between the 61:39 ratio between recurring: non-recurring revenues and the notes in segment reporting. I called Jim McLaughlin (Chairman and FD) to clarify this (the ratio should be 39:61 - ie the other way round) and managed to get the following interesting points:
- they are doing a roadshow from 27 April - which could raise interest
- they are looking to appoint a new market maker to help reduce the bid offer spread - which they accept is something they are trying to resolve with the market
Long term I expect the share price to take into account: a re-rating of the PE multiple to be more in line with peers (Bond has a 50% higher PE), a re rating due to the greater marketability of the shares (as the bid-offer narrows) and a participation in the growth rate of earnings.
Personally I think there's a lot of upside here.