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ClearStar Inc: THE INVESTMENT CASE
INVESTMENT OVERVIEW

ClearStar thriving in the gig economy

A flexible jobs market, an increase in short-term contracts - all play to the strengths of the specialist in background checks
Jobs market
INVESTMENT OVERVIEW: CLSU The Big Picture
The company is now winning larger contracts

ClearStar Inc (LON:CLSU) is set to be a beneficiary of the ‘gig economy’ and the concomitant increase in demand for personnel background checks.

The flexibility of the labour market continues to expand and that is increasing the demand for ClearStar’s direct services and is providing new opportunities for revenue generation.

In its 2017 full-year trading update, Clearstar said it would hit market forecasts for the year as revenues continued to rise in the second half of the year.

Strong demand for job and employee screening from transport firms, contractors and in education lifted direct services revenue by 21% year-on-year, while the number of active clients here rose by 18%.

The number of people screened by ClearStar for direct clients rose by 26% year-on-year.

Once the final numbers are totted up, revenues for 2017 are expected to have grown by around 11% year-on-year to US$17.8mln (US$16mln), with a reduced full-year loss before tax.

Top-line growth is being driven by medical information services​

Medical information services sales rose by 20% year-on-year and accounted for 38% of revenues, while global services revenue rose by 90% year-on-year.

The company is experiencing growing demand for its technologically-differentiated solutions, particularly for medical information services. Additionally, in the direct services market, the company is receiving increased business from large corporates due to greater brand awareness resulting from investment in its sales & marketing efforts.

Clearstar added it had made good progress implementing its contract with IntelliCentrics, which has 10,000 distinct installations across the US, Canada and the UK and is a leading provider of healthcare staff credentialing.

The company ended the year with about US$1mln of net cash, in line with expectations.

“Overall, ClearStar continues to trade just below break-even at an Ebitda level, while steadily building revenue from a move to direct sales, particularly in the medical market,” finnCap analyst Lorne Daniel noted.

“Future growth will be assisted by the on-boarding of major new clients such as IntelliCentrics and MultiLatin, as well as the new global employment screening solution built around the Sphere platform and the new biometric services,” he added.

Upscaling of the direct client base will propel ClearStart into the black​

The underlying drivers are the continued upscaling of the direct client base in an improving US labour market; the increasing traction for its Sphere global offering in the worldwide market; the strength and opportunity in its medical testing business; and finally, the continued strong performance of the company’s original Channel Partner division, the broker believes.

The broker expects ClearStar to swing into profit at the Ebitda level in 2018.

The shares currently trade at 45p; finnCap has a target price of 60p.

“With continued health in its core US employment market ClearStar is set to see further share price appreciation through 2018 towards our 60p target price,” the broker concluded.

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