Vocational training counter Carter & Carter successfully floated on the Official List in 2005 at 235p a share and has proved a terrific share price performer during its short quoted history.

The group is essentially a large outsourced training business. Its vocational learning arm helps employers and Government lift workplace productivity through the provision of adult and apprenticeship learning, while the outsource services division provides teams that actually work within vehicle manufacturer organisations, helping them raise sales and improve customer service and profitability. Contracts in place here include deals with the Volkswagen Group National Academy – a three-year deal worth £7.5 million a year – and with the Motorsport Academy.

Strategy
‘We are investing a lot to go for growth and that is because C&C could become a £1 billion business,’ roars chief executive and founder Phillip Carter. ‘We have got some fantastic tendering opportunities ahead of us, and our strategic aim is to take 20 per cent of the vocational learning market.’

In common with most good companies, C&C is pursuing growth organically as Carter argues there are huge ‘addressable’ markets to go after, especially in the Government-funded areas of work-based training. This includes projects such as Train to Gain, Welfare to Work and even ‘college contestability’.

Strong organic growth has been augmented with an aggressive acquisition strategy since float, with £60 million spent on acquisitions over the past two years, and £30.5 million raised last year to help fund key deals bringing scale and operational breadth, and cementing market leading positions.

September 2005 saw C&C spend £24.2 million on Assa, a provider of vocational training to adults across industries ranging from automotive to food and drink processing to engineering. This acquisition boosted the group’s work-based learning offer, which up until Assa had mainly focused on apprenticeships for 16-24 year olds in the car retail sector.

In February, C&C paid £15.5 million for Fern, a renowned provider of training and advice to the unemployed and disabled.

In May, £25.5 million was spent on ReMIT, C&C’s biggest rival in car retail apprenticeships, in a deal that doubled the size of the group’s apprenticeship activities.

Further earnings-enhancing deals are sure to follow in markets that are in need of consolidation, with C&C’s Government and private sector paymasters looking to work with fewer (and larger) suppliers offering a broader service range. The group’s tendering case is no doubt being helped by the consistently ‘class leading’ achievement rates it scores, as well as by its status as the key skills development player.

Management
Phillip Carter founded the company back in 1992 and is its figurehead in the City. Since then, he has driven its substantial growth in the UK and overseas, having instigated, executed and overseen the earlier acquisition of EMTEC (since merged with ASSA.) Prior to setting up C&C, he earned his spurs through a number of sales
and marketing roles at ICI, ascending to the role of European business development manager of its paints division.

Ably assisting Carter are two directors that joined from ASSA, including business development director Peter Marples. Before joining ASSA, he was a partner at KPMG, where he had national responsibility for the education practice, delivering audit and consultancy services to Government, universities and colleges. He also has grounding within the public sector. Finance director John Green was handed dominion over the C&C financials just over a year ago. Pre-ASSA, he ploughed his furrow for two years with a specialist corporate finance advisory practice, following a stint as finance director of the automotive division of fully-listed Wagon Plc.

On the non-executive side, C&C can call on the experience of chairman Rodney Westhead, currently non-executive director at another Main Board-listed outsourcing star, Mouchel Parkman and at AEA Technology. Another non-executive with plenty of public company experience, particularly in support services, is David Galloway, an independent director of tool hire giant Speedy Hire, May Gurney and Accident Exchange.

Prospects
Excellent financials issued to date have only scratched the surface of C&C’s potential prospects. Numbers for the year to July revealed a 111 per cent pre-tax profits surge to £15.2 million on sales lifted 85 per cent to £94.1 million.

C&C is building market share in some very defensive Government-funded training markets. Furthermore, state spending is being targeted towards areas where improved productivity and competitiveness is apparent. The Government is also focusing its funds on fewer, yet more efficient training providers. Macroeconomic trends driving private sector training should come into play, such as the growth of vocational learning compared with traditional ‘academic’ learning, and the continuing trend towards outsourcing.

Train to Gain – the Government’s flagship national skills programme – presents huge opportunities, with C&C enjoying excellent tendering successes to date, in a market forecast to rise from £230 million in 2007 to more than £400 million by 2008.

And over the coming months, the Learning and Skills Council (LSC) will be tendering for a significant amount of apprenticeship training – between £200 million and £300 million of activity across England – to begin in August 2007. Significantly, it will place work away from players that have not hit the requisite achievement rates, so C&C could prove a major beneficiary.

C&C has also developed a model for outsourcing partnerships with Further Education Colleges, where it could take over certain faculties in areas like engineering and construction with the aim of lifting training quality, improving pass rates and enabling the colleges to focus on core qualifications.

Valuation
Based on current year forecasts, the group is trading on 20.4 times forecast earnings. However, that multiple drops to a more modest 16 times estimated earnings for 2008. Bear in mind, however, that earnings are forecast to grow at 29 per cent this year and by more than 27 per cent next, which should prick up the ears of value investors, since the shares are trading on palatable PEG ratios for 2007 and 2008.

Encouragingly, the company is firmly ensconced on the dividend trail, having declared an improved total payout of 6.75p (3.2p) for the year, with the admittedly slim current yield set to rise as prospects and profits crystallise over future years.

One valuation minus, perhaps, is the year’s closing net borrowings of £59.5 million, up dramatically from £29.1 million in 2005 on the back of debt used to fund the group’s acquisition spree. However, debt is still relatively cheap and interest cover – the ratio of operating profits to the net interest charge – improved from 3.4 to 5.6 times, which should give comfort to investors.

Carter & Carter Group	LSE	0pm	p	p
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