Thursday, 7 February 2008

Brainhunter Shows Proof Is In The Pudding With Closing Of Workopolis Deal

Brainhunter Inc. (BH - TSX)

It's official! Three-quarters of the money has been paid into trust with the announcement that $7.5 million of $10 million has been paid to Brainhunter by Workopolis for the purchase of BH's job board business in Canada and the United States. The deal gives Workopolis:

Perpetual License – Workopolis receives a perpetual license to use Brainhunter’s CareerSite Technology Platform in Canada and the United States. Brainhunter will continue to operate and develop its Job Board activities outside these jurisdictions.

Client Relationships – Workopolis will take over approximately 100 Client relationships where Brainhunter’s CareerSite Technology Platform and operations and marketing infrastructure is the backbone of the Client’s Job Board activities.

On-going Technology Support - Brainhunter will continue to support the CareerSite Technology Platform after closing pursuant to a 12 month Transition Services Agreement and a 24-month Development Services Agreement, both of which are renewable.

Brainhunter expects that it will receive 90% of the funds by March.

Deal Is A Major Endorsement Of Our Share Valuation
Positive Outlook For 2008 Particularly The 2nd Half

The above was the headline on a recent research report upodate from Catalyst Equity Research analyst, Robin Cornwell as he re-affirmed his $1.70 stock price target.

Calling the Workopolis deal a major endorsement of Brainhunter's technology platform, he comments, "In fact, we believe the Workopolis transaction surfaces only a small fraction of the underlying value contained in Brainhunter’s other operating divisions. On an after-tax basis this transaction has surfaced an estimated $0.21 per share of value and is not expected to materially impact our fiscal 2008 outlook".

"We believe Brainhunter has the necessary disciplines and order backlog in place across all divisions to produce sustained EBITDA growth. Total revenue for fiscal 2008 is forecast at $255.0 million, a Y/Y gain of 13%. The revenue growth is essentially all organic driven by higher sales in (i) IT and Engineering staffing business and (ii) new blocks of vendor payrolling. Management indicated that backlog plus expected renewals and extensions of contracts and standing offers currently exceeds $400 million with over $200 million expected for fiscal 2008.

For fiscal 2008, we expect EBITDA to increase to an estimated $9.2 million or $0.21 per share ($0.12 per share fully diluted) which would be a 12% increase over fiscal 2007. We expect the second half of fiscal 2008 to be considerably stronger than the first half which will see the bulk of the impact of the higher marketing costs. We forecast the annual run rate for EBITDA in the second half of fiscal 2008 to approximate $10 to $11 million. Although interest expense and amortization will continue to be a drag on earnings, interest charges will decline, EBITDA along with operating margins should improve as will its working capital position as the cash from the Workopolis deal is received".

To read the entire update click here.

Based on Mr. Cornwell's F09 projection of fully diluted EBITDA/share, the stock is currently trading (low $0.50's) at slightly more than a 4x times multiple and 2.5x multiple on basic (48.3 million) number of shares. The low market valuation has almost become bizarre.