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

presumably sp will tank when financials and accounting irregularities are eventually revealed.

Initially I would agree. Should then find a base from which to consolidate, hopefully.

6th June 2011
Dear Shareholder, Notice of AGM

"As you are no doubt aware, on 25 January 2011, the Board announced the discovery of serious accounting irregularities within the Group and trading in the Company's shares on AIM was suspended. An immediate investigation was launched to establish the circumstances surrounding the commission of, the extent of and the financial implications of these accounting irregularities. Since then, the entire personnel of the Board has changed. Considerable progress has been made in the investigation and it had been the Board's intention to lay the audited 2010 accounts before the Company's Annual General Meeting. Our aim is to ensure that the investigation is as thorough as possible. However, aspects of the accounting irregularities are taking longer to resolve and unfortunately this is currently preventing us from finalising the audited accounts.

The Company is obliged to hold its Annual General Meeting by the end of June 2011 and is therefore convening this meeting in the absence of the 2010 financial statements. It is the intention of the Board to complete the 2010 audited accounts as soon as possible and then to convene a separate Extraordinary General Meeting to consider these and conduct other business which would normally be considered at the Annual General Meeting together with the accounts.

The uncertainty created by the investigation has been frustrating for the Group's employees as well as your Board, the shareholders and the Group's other stakeholders. In the circumstances, I am grateful to our employees for the dedication they have shown. It should be noted that the Australian business which the company acquired in December 2010 has been trading well and appears to be unaffected by the accounting irregularities which occurred in the UK. I am also grateful for the cooperation of the Group's lenders who have been supportive of the Group and the work of the Board in its efforts to normalise the situation.

I am pleased to have been joined on the Board by colleagues with a breadth of experience in both managing and resolving complex business issues. Your Board's priority is to finalise the audited annual accounts and I look forward to being able to give shareholders a more detailed update as soon as possible."

Letter from the Board of Directors, which should provide some comfort for the future of HLO.
http://moneyam.uk-wire.com/cgi-bin/articles/201106291100013507J.html

Or maybe not, as described in the letter below!!
http://www.moneyam.com/action/news/showArticle?id=4175862

What a pig in a poke. Gis a job - "To cite just one example, the Banks have mandated that HCL hire Zolfo Cooper and other advisors at a fee level in excess of 1 million per month".

StockMarketWire.com
Healthcare Locums' Australian subsidiary, Healthcare Australia Holdings Pty, has completed the sale of its homecare division.

The gross consideration, before expenses, was A$34m.

The net proceeds of the sale will be used to reduce the company's debt.

"Further to the AGM statement made by the Company on 29 June 2011, the Board of HCL confirms that it is finalising the investigations into accounting irregularities, working to complete the 2010 audited accounts and continuing negotiations to stabilise the capital structure of the Group with a view to the restoration of trading in the Company's shares on AIM as soon as possible.

A further announcement will be made at the appropriate time."

Rumour in the Sunday Telegraph of a fund raising at 10p to a specific institutional investor. Gets worse & worse!

Harry unless they come clean and produce properly audited accounts would anybody want to buy more shares in this discredited company with little tangible assets?

StockMarketWire.com
Healthcare Locums plans a substantial refinancing to secure its future.

The refinancing comprises a 60m placing, an open offer of up to 4.25m, debt for equity conversion and debt repayment and restructuring.

These are all conditional upon the approval of the shareholders.

The placing has been offered to a range of new and existing shareholders.

Toscafund, an existing shareholder that has been very supportive of the company and its management, , has agreed to subscribe 33.6m for 336,375,000 new ordinary shares and - separately from the debt for equity conversion - ACE Limited has agreed to subscribe 13.16m for 131,625,000 new ordinary shares.

StockMarketWire.com
Healthcare Locums plunged into the red in the year to the end of December posting a pre-tax loss of 56.5m against a 5.9m profit last time.

Revenues fell to 157.2m from 167.5m with gross profits down at 41.2m from 50.4m and margins falling to 26% from 30% in 2009.

Chairman Peter Sullivan said: "Despite its recent troubles, HCL remains fundamentally a good business.

"The board and I are confident that HCL can grow again and prosper from here on."

New shares now available to existing shareholders at 10p, which means , when trading recommences, the sp is going to take a very hefty dive.

Healthcare Locums shares have been suspended since 25 January this year, following the suspension (and later resignation) of its founder and Executive Vice Chairman, Kate Bleasdale. Accompanying the suspension notice was a profit warning, as well as three words that investors truly fear to hear: serious accounting irregularities.

On 19 August, Healthcare Locums' grim final results (including a pre-tax loss of 56.5 million) included a proposed refinancing to reduce the group's debt and allow its shares to resume trading on the junior market. This would include a 60 million placing and an open offer of up to 4.25 million, a debt-for-equity conversion, plus the repayment and restructuring of debt.

ShareSoc says No

As part of the rescue of Healthcare Locums, major shareholder and activist investor Toscafund has agreed to subscribe 33.6 million for over 336 million new shares, and ACE Limited has agreed to subscribe 13.2 million for almost 132 million shares. In effect, this would leave these two investors firmly in the driving seat should the proposals go ahead.

Following this announcement, the UK Individual Shareholder Society (ShareSoc) has hit out at these proposals, forcefully arguing that shareholders should defer their support for the recapitalisation of Healthcare Locums.

ShareSoc warns, "It is clear that the deal is going to dilute most of the shareholders in the company very substantially, whereas it will be mainly to the advantage of Toscafund and others involved in the refinancing. Minority shareholders (such as the individual shareholders we represent) may be prejudiced."

ShareSoc goes on to say, "We remain unconvinced that a better proposition might not yet become available, bearing in mind that the directors seem to be exaggerating the financial difficulties of the company. The past accounting issues seem relatively minor and mostly do not have any cash impact. The threat by the board that insolvency proceedings would be a likely outcome of a failure to approve the proposals (with "shareholders receiving no value for their current shareholdings") is also questionable in our view."

It also points out that one large institutional investor, Arundel Capital, has stated there is no certainty that the recapitalisation will win shareholder approval, before going on to question the motives of the board and its unwillingness to consider alternative proposals.

ShareSoc also wants to see the firm's half-year results, so that shareholders can get a better view of the company's financial position before acting. Hence, it urges shareholders to sit tight, await developments, and defer any decision on voting for the proposals and subscribing for new shares in the placing.

StockMarketWire.com
Healthcare Locums has urged shareholders to back the refinancing package.

Last month Arundel - which holds 0.5% of Healthcare Locus - indicated that it opposed the recommended refinancing and claimed it has the support of a total of 21.6% of shareholders.

Healthcare Locums says Arundel has been invited to substantiate that claim and to provide particulars of those shareholders but has not done so.

A statement says: "The directors believe the consequences facing the company if the refinancing is not approved are serious and not in the best interests of shareholders."

Has anybody had voting papers from the company yet ??? SD

No, but surely we won't get them as shares held in nominee account so individual names not on the share register?
Have had an offer to buy more shares at 10p, but not prepared to throw good money after bad, so declined.

HC
so did I--- thank you. SD

Result of General Meeting and Lifting of Suspension

On 19 August 2011, the Board of HCL announced a substantial refinancing of the Company, comprising a 60 million Placing, an Open Offer of up to 4.25 million, the Debt for Equity Conversion and the Debt Repayment and Restructuring (together referred to as the "Refinancing").

The Placing, the Open Offer, the Debt for Equity Conversion and the Debt Repayment and Restructuring are all conditional upon the approval of the Refinancing Resolutions by Shareholders at the General Meeting.

The Board of HCL is pleased to announce that all the Refinancing Resolutions proposed at the General Meeting held today were duly passed by Shareholders, as were all the Non-Refinancing Resolutions. The Board is therefore pleased to announce that the Refinancing is unconditional in all respects subject to Admission.

Valid applications were received under the Open Offer in respect of 9,450,971 New Ordinary Shares, which was less than the maximum of 42,505,790 New Ordinary Shares available under the Open Offer. Accordingly all such applications were accepted in full.

As a result of the above, the Company has requested that trading in the Ordinary Shares on AIM be restored. The restoration of trading of the Ordinary Shares is expected to take place at 7.30am on 13 September 2011. Application has been made to admit the total number of 734,450,971 New Ordinary Shares to be issued under the Placing, the Open Offer and the Debt for Equity Conversion to trading on AIM. Dealings in the New Ordinary Shares are expected to commence at 8.00am on 13 September 2011.

Following completion of the Refinancing, the number of Ordinary Shares in issue will become 847,799,742 on 13 September 2011.

.