On July 8, 2021, Caldwell Partners (CWL) released their third quarter financial statements (March, April and May) and investors reacted positively. Add a Smallcap Discovery interview and positive comments from Gerry Wimmer and the stock price bounced from $1.52 (July 8) to $2.21 (August 5) a 45% increase. The market cap stands at CDN$58,357,000 ($2.21 X 26,405,693 total shares) ±$18,220,000 more than at the beginning of July.
For many years, Caldwell Partners has been viewed by investors has a dividend play. Collect the dividend and along the way a patient investor collected some capital gain appreciation.
For fiscal year 2010, revenues were CDN$26.9 million and for fiscal year 2019, revenues were $70.4 million. For a nine-year period, Caldwell Partners’ revenues achieved an 11.3% annual compound growth rate.
On December 31, 2020, Caldwell purchased for 11 million US dollars (14 million Canadian dollars) IQ Talent Partners (IQTP). Caldwell Partners now operates through two distinct segments –retained executive search and analytics solutions are conducted as Caldwell and on-demand talent acquisition augmentation solutions are conducted as IQTalent Partners.
From January to the end of May, IQTP generated CDN$13,182,000 in revenues or ±CDN$16,362,000 for a six-month period. Caldwell Partners paid 0.43 times revenues, now that is a good deal.
For the second quarter, normalized revenues were ±$36,123,000. For the third quarter, Caldwell posted revenues of $35,735,000. For the third quarter, Caldwell Partners generated net income of $2,955,000 or potentially $12,000,000 on an annual basis.
It would appear that Caldwell is on pace to achieve $140,000,000 in annual revenues and $12,000,000 in net income, yielding an 8% net income margin.
The current market cap is ±$58,357,000, Caldwell has ±$15,000,000 in cash and has $26,959,000 in compensation payable. Some cash will be required in the operating activities, so not all of the cash is excess cash. Compensation payables consists of salaries, commission, bonuses and performance stock units not yet paid. Compensation payable is a short-term and a long-term incentive plan.
Caldwell Partners and IQTP are cyclical businesses. Caldwell Partners revenues are dependent on the average revenue per partner. In 2010, Caldwell had on staff 29 partners, these 29 partners averaged 10 assignment per year at an average fee of ±$90,000 totalling $26,100,000 in annual revenues. For the current fiscal year, Caldwell has 42 partners, averaging 16 assignment per year at an average fee of $150,000 yielding ±$100,000,000 in potential annual revenues. Each partner generates approximately $2,400,000 in revenues.
IQTP's average daily billing has surpassed $100,000 US. There are ± 249 working days, so IQTP should surpass $25,000,000 US in revenues or ±$32,000,000 CDN in revenues (249 days X $100,000 US X 1.26 exchange rate).
Gerry Wimmer thinks Caldwell Partners valuation could double. If he is right, then the market cap would be $105,000,000 ($4 X 26,405,693 total shares). Using a 6% net income margin, Caldwell Partners would generate net income of $7,900,000 ($132,000,000 X 6%).
$7,900,000 / $105,000,000 = 7.5% cash flow yield or market cap earnings ratio of 13.3 ($105,000,000 / $7,500,000).
The current market cap is CDN$58,357,000. So if Caldwell approaches the estimated above revenues and margins, then the current ratios are $7,500,000 / $58,357,000 = 12.9% cash flow yield or market cap earnings ratio of 7.8 ($58,357,000 / $7,500,000).
Is Caldwell Partners still a bargain?