Sahm Adrangi presented his in-depth investment thesis on Korn/Ferry (KFY) at Best Ideas 2015.
Korn/Ferry is the world’s largest high-end executive recruiter (CEOs, Board Members, Executives with $250k+ salaries) with a 45-year old brand name, leading 5% market share in a fragmented industry, top-tier recruiters incentivized by KFY’s unique cross-selling opportunities, and pro-cyclical 5-10%+ organic growth. For a variety of reasons – sparse sellside coverage, a FQ4 2014 EBITDA miss, and 15% profit exposure to Europe – Korn Ferry trades for a remarkably cheap 12x ex-cash 2015E earnings, 14x LTM cash flow, 7x unlevered 2015E EV/EBITDA, and what we estimate to be a 10% NTM free cash flow yield. KFY’s below-market multiples should recede from view rate as Korn Ferry recruiters benefit from an improving U.S. employment backdrop and accelerating corporate investment. KFY is completely under-levered, with $0 debt and about $300m of cash on a $1.5bn market capitalization. In December management introduced a $150m share repurchase program and emphasized their appetite for accretive, high-return acquisitions. Combined, these could lead to incremental 10-20% earnings growth. Using conservative long-term DCF assumptions, we believe KFY is worth $40/share and would be valued upwards of $50/share were management to adeptly deploy the balance sheet.
About the instructor:
Sahm is the chief investment officer of Kerrisdale Capital Management, a private investment manager that focuses on value and special situations investments. Prior to founding Kerrisdale Capital Management, Sahm was an investment analyst at Longacre Fund Management, a distressed debt credit fund. Prior to Longacre, Sahm worked in the bankruptcy restructuring group at Chanin Capital Partners and the leveraged finance group of Deutsche Bank Securities. Sahm holds a Bachelor of Arts in Economics from Yale University.
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