Long term value creation is all about customer focus, profitable growth and 1 st class execution. Concentrating on what clients want today and in the future - and doing it better than anyone else. We think that Clearstar, a technology-rich background employment and medical (MIS) screening provider, has this in spades. Saying this morning, that its strong growth in 2018 (+13% to $20.1m) had continued into Q1’19 - posting record turnover, up 11% LFL to $5.1m ($4.6m LY).
Better still, this increase is being driven by the more strategically important Direct (+37%) and MIS (+23%) divisions (c. 2/3rds of H2’18 sales), offset by a modest decline in channel partner revenues. Here we understand some attrition has been experienced, due to a few price-sensitive accounts switching to cheaper, less advanced alternatives.
Sure, the latter has taken a little bit of the wind out of Clearstar’s top line sails. Yet big picture this churn is not a major problem, since by the end of the 2019, Indirect should represent <30% of the group. With the rest coming from the two other far more differentiated and faster expanding operations.
What’s more, the resultant improved mix should also eventually feed through into higher EBIT margins. Hence, we make no change to either our 135p/share valuation, or 2019 forecasts of $950k EBITDA (post SBPs) and cashflow neutrality – despite nudging LFLs down slightly to 13% from 15% previously.
Similarly, we remain convinced that patient investors will be richly rewarded in due course - with the company both winning market share, and offering substantial upside vs HR tech service peers .