Cenkos Securities, house broker to InterQuest Group (LSE: IQT), raised its price target after the small cap IT recruitment specialist reported in-line interim results.
Interquest reported a 55% drop in pre-tax profits on lower revenues, whilst projecting the economic uncertainty to linger, but said that the company was in the best shape to face any market conditions in the short to medium term, maintaining a robust and scalable platform to support growth when the UK economy recovers.
Specialist securities firm Cenkos is just as bullish about the company’s prospects, retaining its “buy” recommendation for InterQuest and saying the decline was broadly in line with its expectations as it reflected the impact of the weakening economy on what is a highly cyclical business. The broker’s note highlighted the reduction in the company’s costs, debts and deferred earnout liabilities as InterQuest cut the net debt to £1.4 million from £6.6 million, while total administration expenses were down to £5.2 million from £5.7 million.
The full year pre-tax profit estimate for the company was adjusted to £3.0 million from £3.2 million after its adjusted interim profit amounted to £1.5 million.
Cenkos raised the 12-month price target for the company to 75p from 65p, a 2009 full year price to earnings ratio of 10.7x, representing a 50% increase form the current level. The firm also noted InterQuest had jumped 70% from 30p to 50p since February, when it issued a “strong buy” recommendation for the stock.
Interquest is currently trading on a 2009 P/E of 6.5, well below the sector average and approximately half of the level of FTSE 250 recruitment group Sthree (LSE: STHR).
“Timing on economic recovery is difficult to gauge but once it arrives Interquest is likely to be a major beneficiary,” said Cenkos in its note, expecting the profits to quickly return back towards £5 million as the economy recovers.
Cenkos said the company was in a strong position relative to its competitors, having a long established position within most of the specialist IT fields as well as a long list of blue chip clients that prefer to deal with larger agencies and derived a high proportion of its revenues form contractors, which represented repeat revenue that is less exposed to project delays and recruitment freezes than permanent recruitment.
InterQuest’s current share price stands at 50.5p.
Interquest was founded in 2001 and listed on AIM in 2005 at 55 pence per share. The company was co-founded by CEO and Executive Chairman Gary Ashworth, who still holds a 42% stake in the Company.
Before founding Interquest, Ashworth founded, grew and sold Abacus Recruitment Plc to Carlisle Holdings Plc in 1999.