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Impellam (LON:IPEL)

Share price: 639p
No. shares: 48.8m
Market Cap: £311.8m

(disclosure: at the time of writing I hold a long position in this share)

Preliminary results for the 53 weeks ended 2 Jan 2015.

On an initial review the figures look good to me. This is a staffing group, of considerable size - turnover reached £1.3bn. It's a turnaround situation, as there was one particular subsidiary, called Carlisle, which had some loss-making contracts in the past, that are being sorted out.

Valuation - adjusted EPS rose from 51.5p in the prior year to 68.1p in 2014 - not bad going, so that puts it on a PER of only 9.4, which strikes me as good value.

Balance sheet - I'm more flexible with people businesses, as there is no inventories line on the balance sheet. Therefore I lower my usual 1.2 lower limit for the current ratio to 1.0. Impellam passes that lower threshold with a score of 1.06, so an OK, but not strong working capital position.

The company has been on an acquisition spree, so the balance sheet is filling up with goodwill. This takes the net tangible assets position negative, to -£10.7m. So technically that breaks one of my key balance sheet tests. Given that the group has just posted a pre-tax profit of £31.6m then I can accept a less than perfect balance sheet, as the company is not under any financial strain in my view. Although it's something I'll keep an eye on.

Net debt - is reported at £14.8m, which looks fine, given the size & profitability of the business.

Dividends - total divis for the year are up a healthy 16.7%, at 14p. That's a yield of 2.2%, so not particularly impressive - there are much better yields available elsewhere in this sector.

Outlook - I can't seem to find one, but instead the company gives a list of its priorities for 2015. Although I've not read all the narrative, as it looks mainly waffle. Given that some acquisitions were made during 2014, then they should provide upside for the 2015 figures, where they will contribute a full year instead of a part year.

Broker consensus is currently for 75p EPS this year, so I would have thought a PER in the 10-12 range would be reasonable, which implies a share price of 750-900p, giving 17-41% upside on today's share price.

My opinion -…

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