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

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.

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20 minutes to go until this tanks big time, imo.

734,450,971 New Ordinary Shares to be issued under the Placing!!! Someone's having a laugh.

Unlucky 13th.

mitzy not unlucky reality has kicked in.

Entrepeneur of the year!

lol...

always a bad sign.

Keeps on falling ..5p soon..?

Interim Results.

HIGHLIGHTS

Business Challenges & the new Board's response

. HCL has an experienced new Board and executive management team which was formed during the first half of 2011.

. Challenges faced since the beginning of 2011 have been considerable. The new Board has needed to extensively restate prior year figures as set out in the 2010 Annual Report, refinance the Group to ensure future stability and plan the re-engineering of the UK business to meet the significantly changing needs of the healthcare staffing market.

. Inevitably the new Board has been unable to implement a number of its planned actions until the refinancing had been secured due to lack of cash and an inability to commit future funds. However, following the approval of the refinancing by shareholders, the Board now believes that HCL is in a far stronger position to respond to the changing needs of its UK customers by significantly re-engineering its UK business model and is well positioned for improved performance over the medium term

UK & Australian businesses


. In the UK, HCL is a leading business; one capable of generating good levels of profit by delivering a high level of service on competitive terms to the NHS and private sector. It remains a top-three healthcare staffing provider and the new executive team is committed to substantially improve the business model, to address changing market dynamics.

. In Australia, the HCA business, which was acquired in December 2010, has since its acquisition continued to trade in line with expectations. The Board's goal is to build a broadly based specialist healthcare recruitment business in Australia, similar to HCL's position in the UK.

. The Board believes that operational benefits can be achieved over time by owning both the UK and Australian healthcare recruitment businesses.

Refinancing & Recommencement of Trading of shares on AIM

. Since their appointment in early 2011, it has been the Directors' priority to stabilise the Group's capital structure by reducing debt, including funds received from the disposal of the Homecare Division in Australia in July 2011 and raising further funds for working capital.

. On 19 August 2011 the Board announced a refinancing plan, including a 60m placing, This was approved by shareholders in a General Meeting on 12 September 2011 and was accompanied by an open offer which raised a further 0.95m.

. Trading in the Company's shares resumed on 13 September 2011 following the approval of the refinancing.

This is a disgraceful share. Turkey of the year!

Notice of Proceedings
It has come to the attention of the Board of Healthcare Locums plc that proceedings have been filed against Healthcare Locums plc, Kathleen V Bleasdale, Diane Jarvis and Alan Walker (all being previous directors of Healthcare Locums plc) in the United States District Court for the Southern District of New York.

The proceedings have been filed by Permian Master Fund, LP; Permian Investments Partners, LP; Arundel Capital LLC; Arundel Long Fund LP; Arundel Hedge Fund LP; Privet Capital, LLC and Flinn Investments, LLC. The Summons and Complaint allege that Healthcare Locums plc and the named former directors made misrepresentations during 2010 concerning the Company's profitability and its accounting practices. The Summons and Complaint have not as yet been served on Healthcare Locums plc. However, the Company is taking legal advice and will update shareholders as and when appropriate.

I'd (almost) forgotten about these!

Good for a CGT writeoff, that's about it!

StockMarketWire.com
Healthcare Locums posts pre-tax losses of £12.9m for the year to the end of December - down from £63.6m last time.

The adjusted earnings, before interest, tax, depreciation, amortisation, highlighted items and share based charges or credits increased from a loss of £0.1m in 2010 to a profit of £5.9m in 2011.

Chairman Peter Sullivan said: "Without doubt, 2011 has been the most challenging year in the history of Healthcare Locums plc.

"In January, the Company announced the suspension of its shares following the discovery of serious accounting irregularities and that the financial performance of the UK business was well below the then market expectations.

"The UK business was not generating free cash and the business model had not been adapted sufficiently to accommodate changing market conditions.

"The investigation of the irregularities took several months to complete and led to the restatement of the 2009 accounts when the 2010 accounts were published in August.

"During the course of the investigations it became clear that the capital structure of the group and the costs of servicing its debt were unsustainable.

"In July, the board announced the disposal of the Homecare Division of Healthcare Australia which raised approximately £20.3m in cash that was used to reduce group debt.

"This was insufficient to restore financial viability and the board sought a capital injection and re-negotiated bank facilities.

"The refinancing was approved at a general meeting of the company in September following which the Company's shares were re-admitted to trading.

"All of these issues had to be managed against a background of difficult market conditions, especially relating to supplies to the UK's major customer, the National Health Service, which was implementing its own stringent cost saving measures."

Sullivan added: "The sale of Homecare and the refinancing completed in September re-structured the balance sheet and removed a major source of risk to the on-going financial viability of the group.

"At 31 December 2011, the group had bank and finance lease debt net of cash of £23.4m. In addition, the group has a £10.2m zero-coupon loan note that is not repayable in normal circumstances until 30 September 2021.

"This is stated at £2.6m on the balance sheet at 31 December 2011."

Looking ahead, he said: Although there will be many risks and challenges ahead, we believe that 2011 saw the nadir in the company's fortunes.

"The group has been re-financed; a new leadership team has brought operational stability and is implementing new growth strategies to generate long-term improvements in financial performance.

"Despite all the issues of 2011, the group remains a leading business in healthcare recruitment in both the UK and Australia.

"In the short-term we have the uncertainty regarding two major legal cases to deal with.

"Once legacy issues are addressed, the board and I are confident that the group can prosper."

AGM Statement.

Peter Sullivan, non-executive Chairman of Healthcare Locums PLC, will make the following statement at the Company's Annual General Meeting being held later today:

"I am pleased to announce that the new management team leading your Company has made significant progress in ensuring the stabilisation of the business. In the UK, the transformation of the Company to one that puts the satisfaction of its customers' requirements at the heart of its business is well underway. Provision of locums to the NHS through framework agreements is now the normal way of doing business.

So we can expect a 1000% increase in the sp any time soon then? ;o)