Prime People has been quoted for more than a decade and has had more than one false start. The purchase of commercial property recruiter Macdonald & Co at the beginning of 2006 is the first time it has bought a significant business with a long and successful track record. The company has good growth prospects yet the shares are
modestly rated.

Macdonald was founded by Prime People’s executive chairman Robert Macdonald in 1994. Its purchase for £10.5 million actually constituted a reverse takeover.
Interestingly, there was a deferred consideration dependent on various targets which has already been paid because last year’s operating profit exceeded
£1.95 million.

Previously Prime People’s businesses have been bit part players in their respective niche markets. They never held a strong position and were hit hard by any downturn. In contrast, Macdonald is one of the leading firms in the commercial property recruitment sector – a fragmented market with more than 60 competitors.

It has 88 consultants, significantly more than the 50 employed by rival Judd Faris or the 20 consultants employed by the commercial property recruitment operations of fully-listed OPD. Unlike those rivals it has significant teams in all the main areas including planning, business support, facilities management and technical. It supplies qualified and professional staff but not the likes of tradesmen and labourers.

Clients include Prudential, BAA, Tesco, ING, Henderson and Knight Frank. The largest client accounts for two per cent of net fee income. More than half of the business is on a sole or preferred supplier basis.

Macdonald is good at keeping staff, the net result of the significant spending it devotes to training. The average length of service of the company’s main managers is around seven years. Staff turnover was 15 per cent last year.

Macdonald’s turnover increased from £6.6 million in 2003 to £15.9 million in the year to March 2006. In the same period, net fee income jumped from £3.7 million to £8.2 million and operating profit soared from £231,000 to £2.01 million.

Up until this year Macdonald’s revenues were UK-based. In January it opened an office in Dubai where construction work is booming. A Hong Kong office is being opened and an office is planned for Australia.

Regeneration, infrastructure and schools spending in the UK and internationally will continue to drive the market. The introduction of Real Estate Investment Trusts in January 2007 should also provide additional momentum for the property market.

The growth of the core business can be supplemented by add-on acquisitions in the same sector or by moving into a new market. Architecture, mechanical engineering and property finance are areas that the company would like to add to the existing business.

New areas could be law and pharmaceuticals and the company may even consider a start-up in a new area. Prime People has a small amount of net debt but the business is cash generative and the company has its shares to help finance acquisitions.

Prime People’s biggest short-term drawback might be its name. All the old businesses have been sold but that won’t be immediately obvious to most investors. It will take time for them to realise that the company bears no relation to its former self.

That is why the rating is relatively low even after a substantial price rise in the past year. The shares are trading at less than eight times earnings for the year to March 2007, falling to seven next year. There is even an attractive prospective yield of 3.2 per cent for this year. Buy.

Prime People	AIM	£3.01m	25.00p	0.00p
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