General Employment Enterprises JOB
December 05, 2007 - 10:08pm EST by
2007 2008
Price: 1.71 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 9 P/FCF
Net Debt (in $M): 0 EBIT 0 0

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General Employment Enterprises (NASDAQ: JOB) is a microcap staffing services firm specializing in temporary and permanent placement of information technology, engineering, and accounting professionals. Currently trading at attractive multiples to trailing cash flows, JOB has a pristine balance sheet with significant unrecognized tax assets and over 70% of its market cap in cash, and has recently begun to return capital through a series of special dividends. With no debt and over $1.23 per share in net cash, JOB has a microscopic enterprise value of just $2.7 million, but generated 914k and 1.0M in net income in each of the last two fiscal years. Excluding all investment income, income from operations was 613k and 789k, for a trailing EV/EBIT of just 4.4. (Or an EV/EBI of 4.4, since as I'll discuss below, JOB pays no taxes.)

Trading as high as $16 per share in the late 1990s, JOB suffered a severe stock price decline as overexpansion combined with slackening demand, but maintained a sterling balance sheet and has now returned to profitability. A focus on growing higher-margin placement services has more than offset a revenue decline in short-term contract services, and even contract revenues have now begun to trend up on a sequential basis per the year-end 8-K, in an encouraging sign for the future. Shares traded above $3 as recently as April of this year after a particularly strong 2Q, but have since slumped back nearly to cash value despite the most recent quarter showing net income up 15% year-over-year. In a recent 10-Q, management states that "the Company is well positioned for growth of its operations. Existing branch offices have the capacity to accommodate additional consulting staff and a higher volume of business." Any increase in capacity utilization going forward should further add to earnings.

Cash and cash equivalents totaled $6.34 million as of September 2007, over 70% of JOB's current market cap. The company also has $6.8 million of federal and state tax loss carryforwards expiring various years through 2024, which will be available to create substantial additional shareholder value as current profitability continues, but are currently not reflected on the balance sheet under a full valuation reserve. Eventual reversal of this reserve on continued profitability will make the value in the balance sheet more clear, and create an extreme gain to reported earnings and book value that will likely propel the stock higher on increased investor attention.

Management owns 15.7% of the common, and recently approved a second consecutive yearly $0.10 per share special dividend, in what is likely a prelude to further returns of capital. This year's dividend is payable in January to shareholders of record as of December 14th, which I believe should still allow new JOB investors to participate in the payment. While JOB is already an attractive investment as a public firm and management has not yet shown signs of intending to sell or go private, elimination of public company costs could provide up to $0.4 million in additional annual savings compared to the $2.7 million EV, creating substantial additional upside. JOB is an attractive takeover candidate on a purely financial basis, and could likely achieve significant SG&A savings in combination with a larger staffing services firm, further adding to its value in a strategic acquisition.

Because of low EV valuations to operating earnings, substantial unrecognized tax assets, a strong balance sheet with a large net cash position, significant special cash dividends, and encouraging recent earnings growth, JOB shares represent an attractive microcap value investment with a generous margin of safety and high potential return.


* Continuing return of capital via special dividends
* Recognition of significant off-the-books tax asset
* Improved capacity utilization -> continuation of recent yoy earnings growth
* Potential buyout or going-private
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