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

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)

I've expunged these from my memory - but we can hope! :-)

StockMarketWire.com
A US lawsuit filed against Healthcare Locums and some of its former directors has been dismissed voluntarily by the plaintiffs.

The suit was filed by Permian Master Fund,Permian Investments Partners, Arundel Capital, Arundel Long Fund, Arundel Hedge Fund, Privet Capital and Flinn Investments.

Healthcare Locums says it had no prior notice and no explanation has been given by the plaintiffs as to their reasons for seeking voluntary dismissal.

Chairman Peter Sullivan said: "The board welcomes this decision.

"The filed legal proceedings were an unwelcome distraction and the board was always of the opinion that the claims were wholly without merit."

Outcome of Employment Tribunal

HCL states that the Judgment of the London Central Employment Tribunal in the case of Kate Bleasdale v HCL was received today. All of Kate Bleasdale's claims failed. Her dismissal was held to be non-discriminatory and fair.

What a shocker!

Notice of Proceedings

Following the dismissal of the proceedings in the United States District Court for the Southern District of New York, as previously reported, it has come to the attention of the Board of Healthcare Locums plc that proceedings have now been commenced against Healthcare Locums plc, Diane Jarvis and Alan Walker (both being previous directors of Healthcare Locums plc) in the Supreme Court of the State 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 Plaintiffs').

Kathleen V Bleasdale is not a party to the proceedings. It is also noted that she was released from the former proceedings in the District Court by the Plaintiffs without prior explanation or reference to the Company.

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 will update shareholders shortly.

Peter Sullivan, Chairman, commented "The Board is surprised to hear that the Plaintiffs continue to pursue their claim and maintains its opinion that the Plaintiffs' filed legal proceedings are wholly without merit."

Healthcare Locums PLC today releases a trading update for the half year ended 30 June 2012.

In the AGM statement of 23 May 2012, the Company indicated that unexpected delays in the tendering processes of several national and regional NHS procurement frameworks would have an impact on the timing of HCL signing supply agreements which in turn could affect the anticipated rate of growth for this year. This remains the case and as a result the UK gross profit in the first half of the year has been below management's expectations. HCL has continued to restructure its UK operations and as a result the overall performance at Adjusted EBITDA* level has improved in the UK compared with the second half of 2011.

In Australia, the Company previously stated that progress and trading were encouraging and opportunities for organic growth existed but the national roll out of the existing doctor locum business was behind schedule due to the change in management. Since then, trading in May and June has also been disappointing for the nursing agency and has been behind the Board's expectations. The Board now expects trading to improve in the second half of the year, as Australia moves into its seasonally busier time of the year and the benefits of investments made in the Australian business and of changes in the management team begin to come through.

Overall, with weaker trading than expected, the group expects to report a negative Adjusted EBITDA* for the first half.

HCL ended the first half with £10.3 million in cash compared to £14.2 million as at 31 December 2011. We remain in constructive talks with our lending banks, which have been supportive to date, to ensure banking covenants are appropriate for the business on an on-going basis.

Despite the disappointing trading in the first half, the Board remains confident that HCL is well placed to increase its share of NHS framework business and the increased cost it has put into Australia will begin to reap its reward.

Blah blah blah!

Update on the US proceedings commenced against HCL

Healthcare Locums plc today announces its interim results for the 26 week period ended 1 July 2012.

FINANCIAL HIGHLIGHTS
· Revenue of £101.1m (H1 2011: £116.8m)

· Adjusted EBITDA* loss of £0.8m (restated H1 2011: profit £3.7m)

· Adjusted loss from continuing operations** of £4.0m (restated H1 2011: profit £0.6m)

· Loss from continuing operations of £4.8m (restated H1 2011: loss £6.8m)

· Net debt £30.9m (31 December 2011: £26.0m)

· Financial covenants reset and start of loan repayments deferred until June 2013

http://www.moneyam.com/action/news/showArticle?id=4454052

Company update. Looking grim, imo.

http://www.moneyam.com/action/news/showArticle?id=4525034

StockMarketWire.com
Healthcare Locums has confirmed it has received an indicative joint proposal from Toscafund and ACE to all the outstanding shares for at least 0.54p apiece - the closing market price on 5 February.

Parties acting in concert with Toscafund, ACE and parties acting in concert with ACE own, in aggregate, approximately 72.% of the issued share capital of the company.

Subject to reaching agreement with the company and the lending banks, Toscafund and ACE have indicated their joint intention to inject significant capital into the business following successful completion of an offer.

Extension of deadline in accordance with Rule 2.6 (c) of the Takeover Code

On 6 February 2013 HCL announced it had received, in connection with its seeking an injection of further capital into the Company, an indicative joint proposal ("Indicative Proposal") from Toscafund Asset Management LLP ("Toscafund") and Ares Capital Europe Limited ("ACE") to acquire all the outstanding ordinary shares of the Company not already owned by them and their concert parties at a price in cash of at least 0.54 pence per share. Toscafund and ACE had until 5.00 p.m. on 6 March 2013 to either announce a firm intention to make an offer for the Company in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. On 6 March 2013 the Panel agreed to an extension of that deadline until 5.00 pm on 3 April 2013.

The Company has today, with the consent of the Panel, agreed to a further extension of this deadline under Rule 2.6(c) of the Code until 5.00pm on 10 April 2013. This revised deadline will only be extended with the consent of the Panel in accordance with Rule 2.6(c) of the Code. The Board of HCL has seen a proposal from Toscafund and ACE that demonstrates that they are continuing to work towards making a formal offer under Rule 2.7 of the Code and the provision of additional capital to the Company to allow it to pursue its strategy. Toscafund and ACE are in advanced discussions with HCL's lending banks and the Company in order to finalise their proposal, Toscafund and ACE need an extension to the timetable to reach agreement with HCL's lending banks and the Company.

Notice of claim
The Board of HCL has received a letter from solicitors instructed by Kate Bleasdale, the former executive vice chairman of the Company, giving notice of a potential claim pursuant to section 994 of the Companies Act 2006. The letter alleges that Ms Bleasdale's position as a shareholder of HCL has been unfairly prejudiced by virtue of the events that led to the suspension of trading in HCL's shares in January 2011 and the subsequent restructuring in September 2011.

Amongst other things, Ms Bleasdale claims:

1 The Board's decision in January 2011 to suspend trading in the Company's shares was unreasonable and unnecessary.


2 The refinancing plan favoured the larger shareholders at the expense of smaller shareholders.


3 In supporting the refinancing plan, the Board acted unreasonably and contrary to the interests of the Company and, in particular, failed to consider and/or pursue alternative refinancing options.

As a result of these actions, Kate Bleasdale asserts that HCL should purchase her current shareholding at a price of £1.12 per share being the share price immediately prior to its suspension in January 2011. The cost of so doing would be approximately £2.24 million.

The Board is currently considering the appropriate response with the Company's legal advisors. However, the Board observes:

1 The account set out by the solicitors for Kate Bleasdale is not consistent with the overall findings of the Employment Tribunal that heard her unsuccessful claim for unfair dismissal, discrimination and whistle blowing.


2 The issue of whether there were realistic alternatives to the refinancing proposal was subject to vigorous debate at the General Meeting held on 12 September 2011. Ms Bleasdale and her associates attended that meeting and were given ample opportunity to put forward opposing arguments. Having done so, the shareholders nevertheless voted in favour of the restructuring plan.

OFFER DECLARED UNCONDITIONAL IN ALL RESPECTS

Introduction

On 11 April 2013, the Board of Directors of Angel Acquisitions Limited ("Angel Acquisitions") and the Board of Directors of Healthcare Locums plc ("HCL") announced the terms of a recommended offer to be made by Angel Acquisitions to acquire the entire issued ordinary share capital of HCL (the "Offer"). The full terms and conditions of the Offer and the procedures for acceptance were set out in the offer document issued by Angel Acquisitions on 17 April 2013 (the "Offer Document").

Capitalised terms used in this announcement have the same meanings given to them in the Offer Document unless stated otherwise. All references to time in this announcement are to London time.

HCL Shares Acquired
The Angel Acquisitions Board announces that as at 7 am on 22 April 2013, Angel Acquisitions has acquired 589,969,453 shares from ACE Holdco and Tosca Opportunity, representing approximately 69.6% of the entire issued share capital of HCL (the "Acquired Shares"). The Offer did not relate to the Acquired Shares, which were acquired pursuant to the terms of a Joint Venture Agreement between Angel Acquisitions, Tosca Opportunity, ACE Holdco and Ares Europe, and not pursuant to the Offer.

Offer Declared Wholly Unconditional
Angel Acquisitions refers to paragraph 1(a) of Part A of Appendix I to the Offer Document and hereby announces that it is electing to waive the condition set out in that paragraph as to acceptances of the Offer, together with all other conditions of the Offer which have not yet been satisfied or waived.

Accordingly, Angel Acquisitions today announces that all of the conditions to the recommended Offer for HCL have been satisfied or waived and that the Offer is declared wholly unconditional.

Settlement
The consideration to which any HCL Shareholder accepting the Offer is entitled under the Offer will be settled (i) in the case of valid acceptances received on or before the date of this announcement, on or before 6 May 2013; and (ii) in the case of valid acceptances received after the date of this announcement, but while the Offer remains open for acceptance, within 14 days of such receipt, in each case in the manner described in the Offer Document.