Buy Healthcare Locums - argues Rob Cullum, editor of TrendWatch

One key principle that underlies the TrendWatch investment strategy is that we normally only ever recommend shares that have just started a new uptrend. For the first time since the global credit crisis blew up, weve been forced to research more mature uptrends to find shares that satisfy our high standards. Fortunately, weve found a good un.

It wont be news to many investors that healthcare staffing in the UK is big business, but its quite an eye-opener nevertheless to be reminded just how big. The most recent figures available indicate that the staffing market was on course for an annual total of 5 billion.

Apart from the sheer size of the NHS, a number of factors contribute towards this huge figure: the desire for more flexible working conditions by staff, past failures to invest in the training of a sufficient number of specialist staff, the implementation of the Working Time Directive. But lying behind all of these are the demands of an ageing population, medical advances and also the fact that the vast sums sucked into administration actually seem to boost the need for external support, rather than the reverse.

The NHS accounts for around 45% of the total spend, but with another figure of 45% emanating from the provision of homecare staff. Demand for recruitment services provided by private-enterprise intermediaries such as Healthcare Locums is unlikely to be threatened by superbly organised and far-sighted direct recruitment policies of the client organisations such as the NHS, if you catch our drift.

Healthcare Locums, now four years old, is a group supplying specialist healthcare professionals to both the NHS and the private healthcare sector.

Its ruling ethos is the focus on higher-margin, longer-term specialist staff such as doctors, social workers and allied health professionals (AHPs), rather than the placement of nurses, for example. Working from two call-centres the group avoids the requirement for a costly high-street presence. The admission document argued that being able to supply staff nationwide without a local branch network enabled higher margins still.

This ethos means that, whilst it has lower volumes, there is a higher average transaction value and, in general, placements are longer term. Demand is not as immediate; and the overheads to service this market are therefore lower. It has an expanding database of registered locums across all specialties. Nearly half of these placed by the company at the time of its original flotation were from overseas; and the company had established an international recruitment division with 23 international partners across Europe, the Middle East, Australia, South Africa, New Zealand, the USA and Canada. This is a two-way trade placement outside the UK is a growing area of business.


On flotation, it comprised four discrete significant entities, brought together through acquisition.

the decade-old Thames Medics, a specialist in providing GPs, doctors and psychiatrists to the NHS and private hospitals. This was followed by
Eurosite Medical, a provider of AHPs to the same client groups. Then came
Medical Technical, a specialist in support staff (plaster technicians, sterile services technicians, phlebotomists and the like). This added scale, and also reach, enabling the group to access the supply of operating theatre technicians. Finally
Recruitment Specialist Group extended coverage to qualified social workers.
In November 2005 the company raised 13m at 55p. Six months into public life, it bought BBL for a total consideration of 10.5m, with 5.0m immediately payable in cash (financed by banking facilities) and a further 3m to be satisfied at completion by the issue of ordinary shares. 75% of BBL's income came from recruitment of hospital doctors; most of the rest came from recruitment of GPs.

After almost exactly a year as a public company, it raised 16m in the market at the same 55p price to acquire Blue Group, one of the leading qualified social-work agencies in the UK, for a maximum of 14m - with 10m payable in cash on completion. Blue Group's turnover in 2006 was 36m, and it was reckoned to have 15% of the market in Qualified Social Work (QSW) agencies. The acquisition was a three-way fit: First, Blue also had no branch network; the plan was to integrate the call centres. Second, the back-office integration was expected save 1m a year, starting in 2007. Third, it would help Healthcare Locums' intent of achieving a 33% split between its three core markets - AHPs, doctors and QSWs.

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This history makes the most recent figures for the 100m company irrelevant but the forecasts compelling (see table below).

2006 2007 2008*
Revenue (m) 64.63 144.1 169.50
Pre-tax profit (m) 1.08 12.40 16.90
Earnings per share (p) 7.10 9.00 12.30
Dividend per share (p) - 1.50 2.60

*Forecast
The main figure of interest in the 2006 accounts was the 16% organic growth. But the picture was clouded because it coincided with another substantial acquisition, JCT Locums, for 5.5m cash.

Current trading is robust and in line with management expectations, with one of the key drivers still being that of organic growth. The company is now market leader in each those three specialist divisions (AHPs, doctors and QSWs), and is very close to delivering the one-third income split targeted by the board. It says it will now cease strategic acquisitions so as to concentrate on integration.

The chief executive and 10% shareholder is Kate Bleasdale, a former nurse (ironic, given that her company avoids the nursing recruitment market). More importantly, however, shes a first-class businesswomen with a distinguished entrepreneurial history, and (by way of a footnote) a record-holder for the award of 2.2m damages when she sued her previous company for sex discrimination.

Performance to date has been dazzling; but it we should recognise that, with 13 acquisitions all told, this has, in a sense, been the easy bit. And with debt now running at 34m, up to nearly 6m to be paid out by way of deferred consideration and 67% of sales emanating from the NHS, the company may be a bit boxed-in.

Nevertheless, heading for earnings per share of 9p this year and 12.3p next works out to 12 times earnings in immediate prospect, falling to about 8.5 next year. These numbers leave plenty of medium-term price headroom. BUY

Fiver by xmas spitfire , have faith.

Fly me to the moon
Let me sing among those stars
Let me see what spring is like
On jupiter and mars ......

Ramp , ramp :-)

Write up in The Observer today. See below.......

People are talking about Healthcare Locums, a recruitment agency providing staff for the NHS. The company was founded by entrepreneur businesswoman Kate Bleasdale and floated on Aim in 2005 valued at 31m, but today it is worth 192m. The company is almost recession-proof, and the shares have been rising steadily - by 84% in the past six months - and have outperformed the market by 211% since January 2008. Enough said.

Equinox Partners are keen, another 170,000 purchase after recent nibbles on 22nd May and 18th June which brings holding up to 11,530m or 11.06%.

I brought these in march at 125p, they have now risen 50% to 188p like many other companies. But I re-checked the figures against the Zulu Princible of investing and they are still a buy on all counts. The only one it hasn't met is the gearing at 44.6%, but it is throwing off so much cash that I have no issue with this.

When I first started watching HLO in August 2007 the gearing was 61%, I made a note to only to buy when this figure started to reduce, which is the case now.

Trading Update

Very positive trading statement today lifting the price 14p tp 190p. See below the conclusion by Kate Bleasdale, Executive Vice Chairman of Healthcare Locums plc, the rest of the update is just as bullish and well worth a read.

'We are very pleased with the Group's ongoing strong performance and organic growth. We see enormous opportunities for further growth in all our divisions. We look forward with confidence to the second half of 2009 and beyond.'

Touching the all time high again.

Just sold half my holding @2 for +70 which was nice.

Hmmm a tad premature! New high today 207.

Always good to take a profit, well done. Looks like you brought at the same level as me 125p back in March.

Fiver by xmas skinny :-)

:-)

From Shares Mag - Healthcare-related recruitment has defied the market downturn with ongoing demand for doctors and other skilled medical staff. Shares in Healthcare Locums (HLO:AIM) have more than trebled since floating in November 2005 at 55p.
Kate Bleasdale - founder, executive vice chairman and 9.6% shareholder - has been very open about building up the business for eventual sale. Market talk suggested she originally targeted a 200p per share takeover offer but with the stock now trading at 185p, this expectation may be raised as Healthcare Locums is still capable of increasing its market value as international growth starts to pick up.
Investors should not expect a sale for at least another year or two.
Even after the strong share price performance, shares in Healthcare are still not too expensive to buy. It trades on prospective price/earnings ratio (PE) of nine times, good value for a company growing earnings at a 30% compound annual rate."

Thanks for the info Harry

I have read plenty of positive updates from tipsheets and brokers in the last week, I will try and find them and post them here.

Growth Company Investors 14 July 2009

Insulated from recessionary pressures, Healthcare Locums (HCL), the UKs biggest and fastest growing health and social care staffer, is poised for strong organic growth in the years to come.

In a trading update foreshadowing interim results set for issuance in September, HCL, guided by determined former nurse Kate Bleasdale, executive vice chairman, flagged up robust first half trading and market share gains across its Doctors, Qualified Social Workers and Allied Health Professionals divisions. Driving this growth are market fundamentals, since demand for the qualified health and social care professionals HCL provides is burgeoning against a backdrop of limited supply.

HCL, a preferred supplier to the NHS and other public bodies, enjoyed consistent month on month turnover growth during the half. June proved a milestone, with best ever run rate sales (the months revenue multiplied by twelve) of 203m achieved.

Moreover, HCL said its expanding International Permanent Placement division, now with offices in New York, Melbourne and Dubai and whose development is helping to de-risk the business, posted notably impressive interim growth.

Enthusiastically recommended by Growth Company Investor at 110p last December, HCL is on nothing less than a growth tear, having improved operating profits by more than 80% to 18.6m in 2008, on turnover up 23% at 166.4m. Strongly cash generative, the company also managed to pare net debt back from over 35m to less than 27m.

This year, KBC Peel Hunts Andrew Nussey sees a healthy rise in adjusted pre-tax profits to 31.4m (2008: 17.6m) and in earnings from 12.2p to 21.5p. On those estimates, the dividend-paying shares, recent strong performers, are still only selling for less than nine times earnings and remain excellent value. Consider topping up holdings.

And from Peel Hunt

Strong IMS, positive outlook

The pre-close IMS update confirms that trading remains robust and cash performance remains strong. The disclosed run rates give us confidence that shareholders are likely to continue to re-rate this high quality and rapidly
growing earnings stream. We reiterate our BUY

Trading performance. Management has stated that HLO delivered a record run
rate performance in June as all divisions continue to deliver consistent month on month growth. In June 2009 the revenue run rate was 203m per annum, an
increase from the 189m reported at the time of the AGM in May. Moreover, the
gross margin run rate increased from 61m in May to 63m per annum in June.
This compares favourably with our 62.3m forecast for FY2009. This
performance has been delivered through strong trading across the all divisions
and territories. Furthermore, we believe that this strong revenue performance
ought to be manifest in record operating profits given the improving levels of
operating profit conversion driven by mix and operating focus. In FY2008 the
conversion was 46% and we expect this to have increased to 53%. We estimate
net debt to have fallen significantly since the year end (from 27m to c21m).
This cash performance has also been underpinned by the working capital
improvements achieved through the back office investments made.

Investment case. We believe management has successfully de-risked the
equity story (international position established, reporting/operating platforms
streamlined, efficiencies secured). However, HLO is still positioned for strong
earnings and free cash flow growth (74.8m generated over our three-year
horizon) as management concentrates on delivering rapid organic growth from
its scalable infrastructure. We consider that, with the shares trading on 8.5x for 38% CAGR EPS, these many attractions are still to be reflected in the rating. Buy.

Cheers spitfire .... looks like at least a fiver by xmas then :-)

I like your optimism, I will find another write up to post here and try and get your target upto a tenner by xmas....

and another

James Faulkner of WatsHot.com writes.

My readers are already massively ahead on this t1p and once again, healthcare recruitment firm Healthcare Locums has reported a bullish trading update, with all divisions showing month on month revenue growth during the 26 weeks ended 30th June 2009. In June the group recorded its best ever run rate performance, with a run rate turnover of 203 million compared to the 189 million announced at the time of the AGM in May 2009. Gross margin run rate increased to 63 million from 61 million in May, which suggests the interim results, due on 7th September, should be very good indeed. Trading remains underpinned by the strong demand for and tight supply of health and social care professionals. All divisions increased their market share during the period and the international permanent placement business saw exceptionally strong growth. Forecasts for the first half suggest revenue growth of around 10% to 87 million, gross profit growth of 40% to 27.1 million, EBITA growth of 60% to 12.25 million and adjusted profit before tax up by 82% to 11.6 million. EPS growth will be exceptional at around 74%. How many companies can claim to show EPS growth of 74% in a recession? It is now likely that full-year forecasts will have to be lifted but even on current forecasts the shares remain stupidly cheap for a company of this kind, trading on a current rating of 8.5 falling to 7. I wouldn't be looking to sell until the shares were on a PE into double digits at the very least. They are worth a high teens multiple. Buy.

I'm sticking with a fiver , wouldn't want to be accused of going overboard :-)

Tipped today in Share Magazine in the main feature called "Ten sizzlers for the summer" unfortunately I haven't seen the text because I no longer subscribe.