Jeff Stacey of Stacey Muirhead Capital Management presented his in-depth investment thesis on CPL Resources (Ireland: CPL) at Best Ideas 2018.
CPL is a leading employment services group headquartered in Dublin, Ireland. CPL’s activity spans the entire employment lifecycle and includes permanent, temporary and contract recruitment, workforce management, training, outsourcing and outplacement. CPL’s clients range from market-leading multinationals to small and medium enterprises. CPL has been particularly successful in providing staffing solutions to Ireland’s large IT and pharmaceutical industries having recruited staff on behalf of companies such as First Data, Pfizer, and many others. CPL currently has 41 offices in 11 countries, opening offices in Munich and Boston in the fiscal year ended in June. At the end of its last fiscal year, CPL had a headcount of 11,504 contract or temporary staff placed with clients and 547 recruiters active in the company. CPL competes with both large and niche specialist recruiting and staffing firms from Adecco and Manpower in temporary recruitment to Hays Group in permanent recruiting and specialist firms such as Impellam and HCL in Healthcare and Life Sciences. CPL’s stated business strategy includes developing a balanced mix of business and avoiding overdependence on any one service sector or geography. CPL has grown mainly through organic expansion but it has made selective acquisitions periodically particularly to build platforms in new sectors or markets with good long term potential. Anne Heraty is the founder and CEO of CPL and also the largest shareholder, owning about 30% of the shares outstanding. Her spouse, Paul Carroll, owns a further 5.9% of the shares.
CPL is an excellent business that has consistently grown revenue and earnings over its 27-year history. Revenues in the most recent year were €455 million and net income was €13.5 million. CPL has never had a losing year. It even made money during the financial crisis of 2008-2009 when the company’s business mix was more focused within Ireland and the unemployment rate in Ireland at that time rose above 25%. Jeff considers this impressive and evidence of both the excellent business economics and management skill. CPL generates strong returns on shareholders’ equity, with the most recent year showing a return on equity of ~15%. Excluding a sizeable yearend cash balance on which CPL earned very little, the adjusted return on equity is well above 20%. In June, CPL acquired RIG Healthcare Group for ~€10 million. RIG is a specialist healthcare recruiter in the UK, with a focus on Locum Doctors and Allied Health Professions such as radiography, occupational therapy, pharmacy, and physiotherapy. RIG has five UK offices.
Even after completing this acquisition, CPL ended its June fiscal year with €33+ million in cash. After strategically deciding it could not identify an appropriate use for the cash, CPL recently completed a tender offer purchasing 3.7 million shares at €6.75 per share for total consideration of ~€25 million. After the tender offer, the company has 27.2 million shares outstanding. From a valuation perspective, CPL recently traded at ~10x current earnings (excl. cash). It appears likely to continue growing revenue and earnings at an attractive rate for the foreseeable future. CPL maintains a debt-free balance sheet while raising dividends and buying back shares, as evidenced by the recent tender offer. With both the need for human talent and the difficulty of recruiting such talent continuing to increase, CPL appears well-positioned for success.
About the instructor:
Jeffrey Stacey is the founder of Stacey Muirhead Capital Management Ltd. Jeff has over 30 years of investment industry experience. Prior to starting Stacey Muirhead Capital Management Ltd., he was employed with a boutique Toronto investment firm where he was also a shareholder. Jeff has an Honours Bachelor of Business Administration degree from Wilfrid Laurier University and is a Chartered Financial Analyst. He is a member of the Finance and Investment Committee and an Advisory Board Member of the student managed School of Accounting and Finance Investment Fund at the University of Waterloo. He is also an Advisory Board Member of the student managed Ivey Value Fund at the University of Western Ontario. Additionally, he serves as a member of the Dean’s Advisory Council at the Wilfrid Laurier University School of Business and Economics and on the Board of Trustees at Parkminster United Church. He is a former director of Rainmaker Entertainment Inc. and previously served on the Board of Trustees and Investment Management Committee at the University of Guelph.
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