Here is one - HIT (HITECH GROUP AUSTRALIA). Once darlings, now...

Here is one - HIT (HITECH GROUP AUSTRALIA). Once darlings, now they are very much forgotten.

These guys supply many government agencies and private sector companies with permanent and contract IT staff.

So, basically a recruiter; the business is quite simple: they get revenues for every permanent staff they supply on behalf of clients and a regular payment for contractor salaries. Their biggest expense is salaries to contractors (which is of course less than what they receive from clients) and staff costs.

In 2001 and 2002 financial years, they did just fine and were profitable. They paid fully franked dividends of $1.24M (4 cps) and $930K (3 cps) respectively. If you look at the current share price of 7c, you might be forgiven for asking what the hell happened in 2003.

Lets just say that all the recruiters were pretty much taken to the cleaners that year. The industry went from boom to bust, in particular IT, where HIT's focus is. HIT took a hit & lost $1.3M that year and revenues almost halved.

So, where is the opportunity?

Most industry observers are of the opinion that the worst is over for the recruiters and that firms are hiring again instead of downsizing. For the first half of 2004, HIT actually made a small profit of $76K and was cashflow positive. They've shown that they can rebound pretty quickly and expect a profit for the full year as well. Their market cap at the moments is about $2M which represents basically their NTA as well.

What is even more interesting is that they have approx. $1.6M in CASH, after the sale of a fixed asset (building) and repayment of debt. This leaves them debt free and extra working capital to take advantage of the current favourable market conditions.

I believe that they have turned the corner and so does CEO Ray Hazouri:

“We have shown that we can successfully turn this company around after surviving the worst downturn in 10 years. Now we are back on track to achieving a profitable year. Things should only get better from here on.”

He bought some stock on-market in May this year, so he's put his money where his mouth is. He holds almost 60% of the stock, so liquidity is an issue here.

For me HIT represent a nice little opportunity for an investment of a few grand. To summarise:

-trading at a price which represents the NTA-backing.
-$1.6M in cash (compared to market cap of $2M) and working capital to take opportunities of positive developments.
-market in a cyclical upturn.
-company is profitable and cashflow positive
-a two-year history of dividend payments and a multiple year history of profitability.
-on market director purchases in May 04.
-'historically, the second half is usually better than the first. The second half should be in line if not better than the first half for FY2004.' (taken from 1/2yr report to shareholders).

Jebigabre