ClearStar Inc

http://www.clearstar.net/ TICKER: CLSU     EXCHANGE: AIM

ClearStar, Inc. is a leading and trusted background check technology, strategic services, and decision-making information provider to employers and background screening companies.

LATEST REPORTS

 
ClearStar Inc FY 2018 results: Interview with Management
Published: May 15 2019

CEO Bob Vale and interim CFO Jennifer Balleza discuss ClearStar’s strong growth in 2018 (like for like revenues +13.1%) and prospects for further significant growth.
 
How to buy $1 bills for less than 25 cents
Published: May 13 2019

GARP investing is all about buying the right stocks, run by the right management teams, and importantly at the right price. Not an easy combination to find in today’s markets. However sometimes, just such a company could be hiding directly under one’s nose.
Take ClearStar, a tech-enabled Human Capital Integrity specialist - who after a period of heavy IT/software investment - now enjoys 1st mover advantage within the multi-$bn US employment & medical screening market. Indeed having constructed a formidable ‘tech-moat’, the firm is quickly establishing itself as the ‘go-to’ provider and ‘straight through’ processor of such automated services.
Going forward, the trick will be to maintain momentum – 2018 sales were up 13.1% LFL to $20.1m ($17.8m LY) delivering +$154k EBITDA (pre SBPs vs -$391k LY) – and reap the rewards of favourable operating leverage and 35%+ EBITDA drop through rates. Plus, with approx 95% of revenues in dollars, there’s a natural hedge for UK investors against £ weakness in the event of a ‘no deal’ Brexit.
But that’s not the best part. The stock at 59p, trades on only 1.2x EV/sales vs 5.2x for peers, and at a wide discount to our 135p/share valuation. In fact, push the clock forward to 2023, we think the price could reach 250p – and that would not be expensive either. Representing a 4.2x money return, or a 33% pa ROI. Moreover, there is a sense of inevitability about all of this. At some point we suspect the penny will drop as investors wake up, mean reversion will kick in and the price will re-rate sharply upwards.
Finally, if you’d like to meet CEO Robert Vale and Interim CFO Jennifer Balleza in person, then please email [email protected] to reserve your place at the 5.30pm corporate presentation on Thursday 16th May at Luther Pendragon’s offices (48 Gracechurch Street, London, EC3V 0EJ).
 
Happy customers beget happy investors
Published: Apr 29 2019

World-class companies have one thing in common. They are all totally committed about delighting their customers. Knowing that this can create a powerful feedback loop, and likewise trigger more client wins, higher hit rates, positive referrals and follow-on work.
Today we saw this virtuous circle in action again at ClearStar, a specialist in background & medical screening solutions. Announcing that it had secured a new 3 month $350,000 contract. Both extending and expanding the services it already provides to a relatively new professional services client within the financial services space.
Indeed, this customer only came on board in November and obviously likes the service. Having ramped up revenues from a standing start 6 months ago to an annualised run-rate of >$1.0m pa. Better still, we understand there might be further X-selling opportunities in due course with other parts of the same group. 
In terms of the numbers, we make no change to our 2019 estimates or 135p/share valuation, but are encouraged by the increasing visibility and momentum. At 59p, the stock trades at a wide discount to peers, despite growing at approximately  twice the market rate.

 
Double digit growth continues into Q1'19
Published: Apr 10 2019

Long term value creation is all about customer focus, profitable growth and 1st class execution. Concentrating on what clients want today and in the future - and doing it better than anyone else. We think that Clearstar, a technology-rich background employment and medical (MIS) screening provider, has this in spades. Saying this morning, that its strong growth in 2018 (+13% to $20.1m) had continued into Q1’19 - posting record turnover, up 11% LFL to $5.1m ($4.6m LY).
Better still, this increase is being driven by the more strategically important Direct (+37%) and MIS (+23%) divisions (c. 2/3rds of H2’18 sales), offset by a modest decline in channel partner revenues. Here we understand some attrition has been experienced, due to a few price-sensitive accounts switching to cheaper, less advanced alternatives. 
The latter has taken a little bit of the wind out of Clearstar’s top line sails. Yet big picture this churn is not a major problem, since by the end of the 2019, Indirect should represent <30% of the group. With the rest coming from the two other far more differentiated and faster expanding operations. What’s more, the resultant improved mix should also eventually feed through into higher EBIT margins. 

Hence, we make no change to either our 135p/share valuation, or 2019 forecasts of $950k EBITDA (post SBPs) and cashflow neutrality – despite nudging LFLs down slightly to 13% from 15% previously. 
 
'Disruptive' US tech firm set for banner 2019
Published: Jan 23 2019

ClearStar is an Atlanta HQ’d tech firm that is disrupting the $4.0bn-$4.5bn employment & medical (MIS) screening sector. Here, we think its leading cloud hosted mobile/desktop solutions - including biometrics/facial recognition – could even eventually become the industry’s de facto standard. Replacing less efficient & more time-consuming background checks with much faster, IT-centric customer/user-friendly and fully automated applications. 
Encouragingly, this ‘competitive advantage’ is visible in results as today’s update shows, with 2018 sales climbing 13% (15% H2 vs 11% H1) to $20.1m (vs $17.8m LY) thanks to impressive performances from Direct (up +28% to £5.9m) and Medical (+25% to $8.2m). 
Together these 2 divisions (excluding MIS overlap) now account for c. $12.9m of 2018 turnover, or approx. 64% of the group. However, we predict this will rise to c. $16.2m (or c.70%) in 2019 – thus further propelling LFL growth in 2020 in line with improving mix. 
From a risk perspective, forward visibility is excellent with c.95% of revenues derived from everyday recurring tests, complemented by a robust balance sheet (ED estimated net cash >$1m Dec’18) and >90% of the business coming from North America (re minimal exposure to BREXIT and/or £ weakness). Additionally we don’t see an imminent US recession either, since rarely does GDP turn negative in the 12-24 months preceding a Presidential Election (Nov’20). 
Like CEO Bob Vale says, we believe that the stock has reached an “inflexion point… and look to the future with confidence.” In fact, given the higher growth projections, we have upgraded both our 2019 revenue forecast to $23.1m (delivering EBITDA of $950k & cashflow breakeven) vs $22.8m, and valuation from 120p to 135p/share. Reflecting potentially >100% upside for patient investors vs today’s price.
 
2 new contracts totalling over $1m of revenues
Published: Nov 20 2018

Founded in 1995 and floated at 57p/share in July’14 (raising £8.8m gross), ClearStar (CLSU) is a pioneering technology provider to the c. $4 billion global job screening (60% of H1 sales) and drug/medical testing (40%) markets.
10 years on from the $600bn Lehman Bros bankruptcy and subsequent financial crisis, regulators have been busily cleaning up the industry in order to prevent it from ever happening again. The industry needs the best employee background checking solutions available, with news today of one such professional services firm opting to go with ClearStar. 
A landmark agreement for CLSU, since it is the first within this targeted vertical, and provides a beachhead into the global financial sector. Furthermore, there was also a major contract win for MIS. Here, ClearMD will be deployed by a large consumer reporting agency to provide its clients with mobile-managed drug screening. 
Commencing next year, together these 2 deals with 2 new customers should generate >$1 million of annualised revenues, thus underpinning our forecasts for FY19 and beyond. 
Finally, we would add that in terms of valuation, company offers risk tolerant investors significant potential upside. In fact we calculate the stock to be worth 120p/share - or more than double today’s 58p, representing a mere 1.3x EV/sales multiple, despite expanding faster at 14.6% (FY19) than the peer average (9.1%).
 
Exciting new channel partner
Published: Oct 16 2018

Founded in 1995 and floated at 57p/share in July’14 (raising £8.8m gross), ClearStar (CLSU) is a pioneering technology provider to the c. $4 billion global job screening (60% of H1 sales) and drug/medical testing (40%) markets.
Often the best ideas are the simplest. Take the humble employee ID and/or visitor card. There are probably 10s if not 100s of millions of these dished out globally each year to new recruits, temporary workers, contractors, visitors, etc. Not only costing a small fortune to produce, but also needlessly sucking in vital resource, slowing up the on-boarding process and damaging the environmental (re plastic).
However, one way of streamlining the whole process is to automate it on mobile. This is where Virtual Badge (owned by Florida-based Disaster Solutions) fits in. From a standing start, its patented smartphone ID badging system (see below) has already signed up a host of key customers, such as Clayton, Great Explorations, SOP technologies, ISTC Training Council, Colorado Childrens Hospital, etc.
Today came news that it had selected ClearStar’s leading background screening & facial recognition solution (ClearID) to provide it with remote ID verification. Integration will occur over the next couple of months, with go-live expected by year end.
Although we make no change to our financial forecasts, we see this kind of partnership offering substantial X-selling synergies both within Virtual Badge's target markets – namely the gig economy, construction & engineering, healthcare, membership organisations, youth sports and at secure facilities - and across ClearStar’s more established client base. 
At 65p the stock trades at a near 55% discount to our 120p/share valuation – equivalent to a paltry 1.5x EV/sales, in spite of growing quicker than the sector average.

ARCHIVE

2018
An interview with the management of ClearStar Inc, Sept 2018
Published: Sep 24 2018

Robert Vale, CEO and David Pattillo, CFO, presented the group's financial and operational performance highlights for the 6 months to end of June and lay out the plans for future growth.
Valuation raised due to accelerating growth
Published: Sep 17 2018

Founded in 1995 and floated at 57p/share in July’14 (raising £8.8m gross), ClearStar (CLSU) is a pioneering technology provider to the c. $4 billion global job screening (60% of H1 sales) and drug/medical testing (40%) markets.
Today’s H1’18 results appear very encouraging: sales climbed 10.8% to $9.9m ($8.9m LY) - representing their highest level ever for a 6 month period, with LFL growth being significantly faster than the broader market. Here, the standout performers were MIS (up +27% to $4m) and Direct (+22% to $2.8m: incl 15% of MIS). Together, these two divisions now account for 62% (or $6.1m) of turnover vs 56% 12 months ago – and are forecast to jump to 67% in H2 and 70.3% next year.
Consequently, with almost 2/3rds of the Group expanding at >22%, it does not take a 1st class honours degree to realise that good things are about to happen. What’s more, based on the normal flow of repeat business, augmented by recent client roll-outs, on-boarding and planned implementations, revenue visibility for this year and next looks excellent.
 
In fact, irrespective of some channel attrition, we envisage total H2’18 sales will advance 12.9%, hitting our FY target of $19.9m - and then leap by another 14.6% in 2019 to $22.8m and 15.9% in 2020.
Similarly, alongside tight cost control & cash management - re: H1 opex flat at $6.3m YoY, and OCF +$283k ($323k LY) - profits have reached a major inflexion point too. The firm posting its first positive EBITDA in the period ($45k vs -$235k: post SBPs), and we predict, will ultimately push EBIT margins from -6.3% this year to 19.3% by 2025 – in line with industry averages of c.20%-25%
Therefore in terms of the numbers - based on our DCF modelling, a range of benchmarks and a 12% discount factor - we are upgrading our valuation from 100p to 120p/share – or >50% above the 78p price, but still only equivalent to 1.5x 2022 EV/sales. 
Record revenues and positive EBITDA
Published: Jul 18 2018

ClearStar (CLSU) is a leading technology provider to the multi $billion job screening (63% of $17.8m 2017 revenues, up 11% LFL) and drug/medical testing (H1’18 40%) markets. The firm, head-quartered in Atlanta Georgia (US), employs ~90 staff; and enjoys high retention rates of >90%, and excellent forward visibility reflecting the everyday, low-cost and often mandated nature of its products.
Not only is the Dollar the world’s reserve currency, but also the US economy is on a roll. Aided by unemployment of 4% and January’s sweeping tax cuts, the Atlanta Fed are pencilling in Q2’18 GDP of 3.9% (vs 2.0% Q1). Meaning that, with CPI inching up to 2.9% in June, Q2 domestic output could in nominal terms even tip 6.5% (vs UK at ~3.5%). 
Unsurprisingly, this is welcome news for Georgia-based ClearStar. A technology-rich (R&D accounts for ~10% turnover) provider of every day, low cost background checks for job seekers and drug/medical testing services (MIS), generating 90%< of its revenues from the States
This constructive demand picture - combined with expansion in the ‘gig’ economy, market share gains and the gradual legalisation of cannabis - is helping to power double digit top line growth. With the firm achieving its highest ever 6-monthly turnover of $9.9m in H1’18 (+11% vs LY $8.9m - estimated split 11.4% Q1, 10.6% Q2), and encouragingly becoming EBITDA positive (Est $0.1m). Boosted by impressive performances from MIS (+27% to $4.0m) and Direct (+22% to $2.8m - transportation & logistics), alongside favourable operating leverage.
Elsewhere, two important system integrations were completed in the period to enhance CLSU’s offering and routes-to-market. Namely ClearMD, with the 3 largest US drug laboratories (Re Abbott, LabCorp and Quest Diagnostics), enabling customers to choose from >9,500 testing sites across the country. And CLSU’s state-of-the-art ‘touchless’ mobile solution (including facial recognition) with SAP SucessFactors.
Shifting to the numbers, we have increased our valuation from 95p to 100p/share thanks to the better than expected H1 cash out-turn. Albeit at this stage, prudently retained the FY18 turnover and EBITDA forecasts of $19.9m and $0.5m respectively. 
Broadening of medical testing service
Published: Jun 20 2018

ClearStar (CLSU) is a leading technology provider to the multi $billion job screening (63% of $17.8m 2017 revenues, up 11% LFL) and drug/medical testing (37%) markets.
Momentum seems to be building. At the 22nd May trading update, CLSU announced that it had secured new work with the likes of Gulfstream Aerospace, Hilmar Cheese and BNSF Railway Company (a Berkshire Hathaway company). 
Then today came news that the firm had enhanced its medical services platform by integrating the ClearMD mobile drug testing solution with Abbott Laboratories, a leading global provider of healthcare diagnostics.This immediately increases the number of CLSU locations [to >9,500] where an employee/candidate can utilise ClearMD, particularly in rural areas. What’s more the agreement should also generate significant economies of scale (eg procurement), along with speeding up the whole service proposition.
CEO Robert Vale stating: 'We are very proud to have achieved this integration with Abbott Laboratories, which makes ClearStar the only provider of paperless medical testing with a fully customisable user platform that is integrated with all three major US labs'.
Although this agreement does not change our numbers or 95p/share valuation, we nevertheless believe the stock is significantly undervalued. Underpinned by CLSU’s technological expertise, ongoing buoyant demand, high repeat revenues and 90%+ retention rates.
Valuation rises to 95p/share
Published: May 22 2018

ClearStar (CLSU) is a leading technology provider to the multi $billion job screening (63% of $17.8m 2017 revenues, up 11% LFL) and drug/medical testing (37%) markets. Today it released a pleasing trading update ahead of its AGM.
Q1’18 sales were up >11% with momentum continuing into Q2. Driven primarily by the rollout of direct contracts (eg SIRVA) won in 2017 for background screening, and the increased adoption of MIS (eg Pacific Maritime) by channel partners. 
Furthermore, ClearStar has seen a step-up in interest (eg winning Gulfstream Aerospace & Hilmar Cheese in Q2) for its innovative ‘touchless’ solution that integrates with SAP SuccessFactors - adding another potentially major route to market. Whilst more broadly macro demand remains robust thanks to a buoyant US recruitment sector, growth of the ‘gig economy’, international expansion and tighter legislation with regards to illegal workers.
The balance sheet is in good shape too, with net cash set to close Dec’18 at $1.0m – which, together with a $5m undrawn borrowing facility, should provide ample headroom. Further out, we are pencilling in 2019 turnover and EBITDA of $22.3m and $1.6m, climbing to $44.3m and $11.3m (margin 25.6%) by 2025.
Consequently, we maintain our 2018 turnover and EBITDA estimates of $19.9m (+11.8%: split 11.2% H1 & 12.4% H2) and $0.5m respectively. 

Albeit we nudge up the valuation from 90p to 95p/share on the back of recent dollar strength (£:$ 1.36 vs 1.43 at time of prelims) and healthy visibility, underpinned by high retention rates and annuity-type revenues. 
An interview with management
Published: Apr 20 2018

Bob Vale, CEO, and David Pattillo, CFO, present the Group's financial and operational performance highlights for FY17 and lay out the plans for future growth.
Quality stock at rock-bottom price
Published: Apr 17 2018

Founded in 1995 and floated at 57p/share in July’14 (raising £8.8m gross), ClearStar (CLSU) is a leading technology provider to the multi $billion job screening (63% of $17.8m 2017 revenues, up 11% LFL) and drug/medical testing (37%) markets. The firm, head-quartered in Georgia (US), employs ~90 staff; and enjoys high retention rates of >90%, and excellent forward visibility reflecting the everyday, low-cost and often mandated nature of its products.
Warren Buffett, the ‘Sage of Omaha’, has spoken many wise words during his accomplished career. Not least that “markets can stay irrational for far longer” than one might expect - yet ultimately they’re “weighing machines”, so value wins out in the end. 
This is the predicament ClearStar currently finds itself in. Trading on a bargain basement 1.1x 2018 EV/revenues vs 4.2x for the broader credit checking/SaaS sector. A point not missed either by respected fund manager Hargreave Hale (part of Canaccord Genuity), which has doubled its stake to 14.5% over the past 12 months. 
The good news is that the underlying business is motoring along nicely, and should turn EBITDA positive (vs -$0.4m) in 2018 on sales of $19.9m (+11.8%). Moreover, this assumes £2m of R&D spend (or 10% of revenues), reflecting CLSU’s award winning technology, particularly in mobile, facial recognition and GDPR compliance. Double digit top line growth was achieved in 2017, even after absorbing the impact of Hurricanes Harvey and Irma. Posting turnover up 11% LFL (12% H1: 10% H2) to $17.8m (vs $16.0m LY) and net cash closing December at $1.24m ($2.25m). 
In summary, therefore, today’s results are consistent with our investment thesis - reiterating the $19.9m 2018 turnover target, albeit trimming EBITDA from $0.9m to $0.5m after factoring in a slight increase in R&D and lower gross margins. However, this should be viewed simply as a temporary bump when considering the long term picture. Further out, we are pencilling in 2019 turnover and EBITDA of $22.3m and $1.6m respectively, climbing to $44.3m and $11.3m (margin 25.6%) by 2025.
Underpinned by numerous macro tailwinds, such as the favourable US economic backdrop for hiring, shift towards the ‘gig economy’, Federal measures to combat crime and the greater adoption of pre/post-employment medical screening (re health & safety). Indeed, with >90% of sales derived from ongoing ‘repeat’ work – eliciting EBITDA drop through rates 40%+ - then patience should be rewarded in due course. 
Looking ahead, we are pencilling in 2019 turnover and EBITDA of $22.3m and $1.6m respectively, climbing to $44.3m and $11.3m (margin 25.6%) by 2025. The shares appear fundamentally mis-priced at 45p versus our 90p/share valuation.
Medical and direct sales powering growth
Published: Jan 11 2018

ClearStar is a leading technology provider to the multi $billion job screening (62% of 2016 sales) and drug/medical testing (38%) markets. The firm, head-quartered in Georgia (US), employs about 90 staff; and in 20176 conducted 7.8m screens (+8% YoY) on >2.3m individuals across >20k businesses, delivering turnover of $16m (~95% US).
Despite the unwelcome impact of Hurricanes Harvey and Irma in its backyard states of Florida, Georgia, South Carolina and Texas, ClearStar nonetheless reported impressive 2017 trading yesterday. Bang in line with our pre-storm estimates (from July), with revenues up 11% LFL (split 12% H1: 10% H2) to $17.8m (vs $16.0m LY) and net cash closing December at $1m (vs $1.5m June and $2.25m LY). 
Growth is being driven by buoyant demand for direct screening (+21%) and medical/drug testing (+20%) services. The latter now (including channel partners) accounting for 38% (35% LY) of revenues, with the former equally set to climb from 24% in 2016 to >50% by 2024.
Going forward, we make no change to our numbers, and believe the company will continue to benefit from favourable macro tailwinds. Namely a positive US employment picture, shift towards the hiring of ‘casual/temporary’ labour, government crackdowns on illegal workers and the greater adoption of pre/post-employment medical screening (re health & safety). Especially in light of the US’ ongoing fight again opioids, and recent legalisation of some recreational drugs, such as Marijuana in California (from 1st January 2018).
Importantly too, 90% of turnover relates to ‘repeat’ everyday business – delivering retention and EBITDA drop through rates of 90% and 40%+ respectively.
To us the stock looks lowly rated, trading on a frugal 1.1x 2018 EV/sales multiple, particularly given the double-digit organic growth, resilient business model and annuity type income streams. Indeed, for 2018 we are pencilling in EBITDA of $0.9m on turnover of $19.8m. 

Our DCF valuation comes out at 90p/share, and in due course the stock could trade at not too dis-similar levels to other software, SaaS and credit check peers.
2017
Investor Forum September 2017
Published: Sep 25 2017

Robert Vale presents at the Equity Development September Forum
12% LFL growth drives record H1 sales
Published: Sep 19 2017

ClearStar (CLSU) is a leading technology provider to the multi $billion job screening (65% of 2016 sales) and drug/medical testing (35%) markets. The firm, head-quartered in Georgia (US), employs ~90 staff; and in 2016 conducted 7.8m screens (+8% YoY) on >2.3m individuals across >20k businesses, delivering turnover of $16m (~95% US). 
Circa 90% of turnover relates to ‘repeat’ everyday background/employment and drug/alcohol screening tests (run-rate >8m pa). Better still, retention is an impressive 90% - which when added to the natural flow through of recently signed deals, the ‘on-boarding’ of existing clients, and today’s ‘bang in line’ interims – means there is >95% and >85% respectively of revenue cover for this year ($17.8m) and next ($19.8m). 
This top line predictability brings with it 40%+ EBITDA drop through rates, which should propel the company into the black in H2’18, along with being cashflow positive. Consequently to us, trading on a modest 1.3x CY EV/sales, the stock looks cheap, and should (in theory at least) respond favourably, as more investors begin to appreciate the double-digit organic growth, positive operating leverage, scalable business model and annuity type income. Rare qualities indeed in an increasingly uncertain world. 
For the 6 months ending June, turnover was up 12% LFL to a record $8.9m (vs $8.0m H1’16 and $8.1m H2’17) with EBITDA losses declining 20% to -$165k (vs $208k LY). Divisionally, Direct H1 revenues jumped 20% to $2.3m reflecting buoyant conditions in transportation (eg UniGroup) and domiciliary care, while Medical Information Services (MIS) climbed 15% to $3.1m helped by the roll-out of the blue ribbon Intellicentrics contract, secured in Mar’17. 
In 2018, we are pencilling in EBITDA of $0.9m on turnover of $19.8m - rising to $22.1m and $1.9m in 2019, and $43.5m and $11.0m (margin 25%) by 2025 (see below). Our DCF analysis values the stock at 90p/share, using a range of multiples, discounting back at 12% and adjusting for cash.


NB CLSU management are presenting at the ED Forum this Wednesday evening, 20th Sept, register here to meet them:  
https://www.eventbrite.co.uk/e/equity-development-investor-forum-september-2017-tickets-37192632164?ref=ebtn
Booming gig economy driving growth
Published: Jul 12 2017

Founded in 1995 and floated at 57p/share in July’14 (raising £8.8m gross), ClearStar (CLSU) is a leading technology provider to the multi $billion job screening (65% of 2016 sales) and drug/medical testing (35%) industries. The firm, head-quartered in Georgia (US), employs ~90 staff; and in 2016 conducted 7.8m screens (+8% YoY) on >2.3m individuals across >20k businesses, delivering turnover of $16m (~95% US). 
What if it was possible to find a company, expanding at >10% pa, yet trading at a mere 1.1x EV/sales vs 2x-4x for the wider sector. Interested? I was too upon coming across ClearStar Inc. A little-known £16m market cap stock, providing automated job screening and alcohol/drug testing services. Areas enjoying buoyant demand from the rise of the high profile ‘gig’ economy (Uber/Deliveroo), government clampdowns on illegal workers and ongoing healthy employment levels.
Although competing against some pretty serious players – namely First Advantage, HireRight and Sterling Talent Solutions – ClearStar is nonetheless gaining market share, and is set to achieve a maiden EBITDA profit in H2’17, and be slightly cashflow positive 12 months later.
The Board said today that turnover had climbed to a record $8.9m (+12%) in H1 (all organic) vs $8.0m H1’16 and $8.1m H2’17 – thanks to a standout performance from Direct (transportation & home healthcare), augmented by double digit growth in medical/drug testing and a stabilisation of Singlesource’s client base (acquired mid Dec’14 for $4m).  What’s more, growth accelerated sequentially from Q1 (+10.5%) to Q2 (+13%), compared to the broader US screening sector, which we understand is ticking along at a much slower 2%-5% pace.
Looking ahead, we reckon this momentum will be maintained into H2 and beyond, with the Board “confident of achieving strong full-year revenue (ED est. $17.8m up 11% vs $16m LY) in line with market expectations.” Indeed, 2017 is anticipated be a watershed year, with CLSU achieving a small maiden EBITDA profit in H2 - and then become cash flow positive towards the end of 2018 on turnover of $19.8m. Thereafter, we are pencilling in 2019 revenues and adjusted EBIT of $22m and $0.6m respectively, climbing to $43.7m and $8.4m (margin 19.2%) by 2025.
We think CLSU deserves to trade on a rating not too dissimilar with the ‘SaaS’ (software as a service) sector, given its top-notch technology, low churn, recurring revenues and scalable business model. Moreover, our DCF analysis implies that the stock is worth 90p/share when using a range of 2025 multiples, discounting back at 12% and adjusting for cash.