6/08/2015

Cheap and Safe, Computer Task Group (CTG)

Computer Task Group is an international IT staffing and services company. Employee count is 3,900 with geographically diversified operations in North America and Europe. CTG has a large presence in the fast growing healthcare market, implementing electronic health records and health information exchanges. Proprietary software is available  to support healthcare providers and clinical systems integration.  Founded in 1966, besides the health care sector CTG serves technology providers, financial services, energy , and general markets.

Cheap:

Computer Task Group is a simple story trading at historically and  relative cheap valuations, P/B, P/S and market value near 5 year low. CTG is consistently profitable,  TTM dividend yield of 3.20% and an oversold (-51.30%) negative 52 week price change.

The table below compares the enterprise value to non cash assets, gross profit, revenue, EBITDA, and EBIT for the annual periods 2009 to TTM. Valuation discounts are significant across all line items of the financial statements. The current price trades at only 1.45 times annual gross profit and 7.90 EV/EBIT.







The table below shows the increase in per share value for revenue, GP, book value, and dividends. These intrinsic value improvements  contrast to the average per share market value declining over the same period. CTG trades at half the prior year's market value.





 
 
 
 
Safe:
CTG has a consistent diversified international revenue stream. The break down by region is 81.80% North America and 18.20% Europe. Multiple sectors are served;  healthcare, financial services, energy and general markets. Revenue by vertical markets as a percentage of total revenue for the quarters ended April 3, 2015 are Technology services providers 28.50%, Healthcare 24.10%, Financial services 7.00%, Energy 5.60%, and General markets 34.80%.Further, a strong balance sheet with zero long term debt and 2.23 per share in cash. Z score (5.90), M score(-2.56), and a sloan ratio(-.45) all indicate a safe financial operation.    


Ownership: According to Yahoo, insider ownership is 32.95%. But,  reviewing the latest proxy there are 12 officers, directors that own 11.40%.Value investing institution Royce owns 12.50% along with other value shops, Heartland, Robeco, Minerva Advisors, Teton and others. Insider activity for 2015, directors acquired 26,555 shares for $231,815 at an average price of $8.72.CEO received 67,000 shares. Note that share count has remained stable from 2008 and prior years had positive insider buying at higher prices.



Price = $7.71 on 06/07/15

Annual Growth Rates:
Revenue 10yrs = 5.30%, 5yrs = 6.40%, 12 months = .60%
Free cash flow 5 yr growth rate = 31.80%
Book value growth rates 10yrs = 9.30%, 5yrs 9.80%, 12 months 13.70%

Market Cap: 144.31M,Enterprise Value:82.67M
Revenue(ttm):392.83M,Revenue Per Share:25.87
Qtrly Revenue Growth (yoy):-0.40% ,

Gross Profit(ttm):79.34M(compares favorably to current MC of 144.31M)

EBITDA (ttm):16.92M
Total Cash(mrq):34.42M or 30% of Market Cap
Total Cash Per Share (mrq):2.23
Total Debt (mrq): 0.00 ,
CFFO(ttm):11.57M or ,FCF (ttm):10.44M
52-Week Change:-51.30%
52-Week High:17.47 , 52-Week Low:7.27
Shares Outstanding:  18.72M , Float:  11.35M
% Held by Insiders: 32.95%,
% Held by Institutions:58.10%
Short % of Float: 6.10%
Annual Dividend Yield: 3.30% 

 

Conclusion: CTG is a simple story that's safe and cheap. Their strong international presence in health care IT coupled with trend to use non permanent project based workers offers significant growth opportunities. Valuations are near the market's best with a 3.20% dividend yield supported by ample free cash flow. Lastly the trend toward using temporary based employees continues to grow.

No Position

4 comments:

Chris said...

This is on my to look into list. Why are sales and most importantly, operating earnings down so much over the last couple of years?

Bar G said...

Chris- Seems like change in revenue mix: decline in high-margin health related revenue which is substituted with low-margin staffing business.
Death of CEO and some write-offs didn't help their cause in FY14.

Though I didn't like the downward trend in profit & their over-reliance on a single customer (IBM with ~25% of revenue) it is interesting and will keep an eye..

Bar

ShadowStock said...

Chris, Barr

Thanks for the useful comments. I can’t know but would like to think the current price reflects all the negatives and then some. The strong dollar versus Euro and Pound negatively impacted revenue. IBM and SDI accounted for 23% and 7% of total revenue respectively; no other company accounted for more than 10%. Foreign competition from Asia is always a growing threat to margins and revenue. I still like the risk reward on the stock. John

Akash Agarwal said...

The Price point out is very nice and the post is also well.


Aakash Agarwal