Getting its ‘Mojo’ back
The Company is the first to admit that in April 2015 it bit off more than it could chew with the £66.8m transformational acquisition of Networkers International (NI). Attempting in one fell swoop to expand outside of its UK engineering heartland, only to discover a catalogue of deep-rooted issues. But in this morning’s FY18 prelims, the good news is that the self-help measures are starting to bear fruit. Sure there’s still plenty to do, and most of the benefits (eg £3m of annualised savings) will be only fully realised in future periods.Overheads have been cut, headcount reduced (870 Jan vs 810 in July), underlying cashflow improved (y/e debtor days 52 vs 55 LY) and LFL NFI growth stabilised at +1%. Moreover, apart from a temporary air-pocket in demand at Network Rail which hurt RSL (HS2, CP5, Crossrail winding down & Carillion), we understand UK Engineering’s FY18 NFI would have actually been up +3.5% rather than the 1.4% reported.
Elsewhere, there was a shift in FY18 NFI between contractor (-5% LFL) vs permanent placements (+19%) - coming in at 72:28 vs 76:24 FY17, and mirroring the new public sector IR35 rules, buoyant conditions in the US and IT exclusivity agreements. For FY19, this mix should move further towards perms thanks to the withdrawal from Telecoms Infrastructure, partly offset by an increase in the North American contractor base. Encouragingly too, despite the recent slump in UK car production (JLR, Michelin, Schaeffler, diesel, etc), Q1 trading is consistent with our FY19 expectations at the NFI, PBT and EPS levels.
The Group’s medium-term priority is to reduce net debt to below 2x EBITDA, compared to 2.7x in July and an estimated 2.9x in FY19. This will not just provide the Board will extra flexibility, but also eventually enable dividends (temporarily suspended) to resume. The pay-out policy being to distribute c.50% of statutory EPS over the economic cycle. The Board has adjusted. promptly in Mar’18 and renegotiated its banking arrangements with HSBC.
So, in light of the improving outlook, our FY19 NFI, PBT and adjusted EPS (diluted) forecasts have been broadly held at £72.0m (vs £72.1m before), £10.9m (£10.9m) and 23.1p (24.5p) respectively. Similarly, the 180p/share valuation has been retained – with the stock at 140p trading on modest FY19 EV/EBIT and PER multiples of 6.6x and 6.1x respectively vs 8.6x and 10.3x for the sector.
Gattaca is an engineering and technology recruitment solutions company. Co. operates in the STEM markets (science, technology, engineering and maths), all sectors with skills shortages. Co. has three reporting segments, Engineering, Technology and International. Co.'s brands are Matchtech, an engineering recruitment specialist; Networkers, a technology recruitment specialist; Cappo, Provanis, Barclay Meade, a professional services brand, recruiting finance, procurement, sales and HR professionals., and Alderwood, which is involved in placing trainers and assessors with training providers throughout the U.K. and the Middle East.
Harvey Nash Group is involved in recruitment business. Co.'s portfolio of services, ranged from executive search and professional recruitment to offshore solutions. Co.'s portfolio of services comprised of: leadership services, which include Executive Search, Interim Management, and Leadership Consulting; professional recruitment, which include Technology and Specialist Recruitment, and Recruitment Solutions; and IT outsourcing & offshore services, which include Projects and Software Development Services and Business Process Services. Co.'s segments are: U.K. & Ireland; Mainland Europe; and Rest of World, all of which provides permanent recruitment, contracting and outsourcing.
Randstad is a global staffing and recruitment company, providing various solutions in the human resources (HR) services space. Co.'s services include regular temporary staffing and permanent placement of candidates. In addition, Co. provides several other HR solutions, such as Recruitment Process Outsourcing (RPO), Managed Services Programs (MSP), payroll services, and outplacement. Co. provides four distinct service concepts: Staffing, Inhouse Services, Professionals and HR Solutions.
RTC Group is a holding company. Through its subsidiaries, Co. is a recruitment business that focuses on white and blue-collar recruitment, providing temporary, permanent and contingent staff to a range of industries and clients in both domestic and international markets. Co.'s principal trading subsidiaries include: ATA Recruitment Limited, which supplies recruitment solutions to the engineering and technical sectors; Ganymede Solutions Limited, which is a provider of blue and white-collar skilled and semi-skilled labor, safety critical personnel and technical staff on call-off and temporary term contracts; and ATA Global Staffing Solutions Limited, which is a staffing solutions provider.
Staffline Group is a holding company. Through its subsidiaries, Co. is engaged in the provision of recruitment and outsourced human resource services to industry and services in the welfare to work arena. Co. has two operating segments: Staffing Services and PeoplePlus. The Staffing Services segment provides labour solutions in agriculture, food processing, manufacturing, e-retail, driving and the logistics sectors in the U.K., Eire and Poland. The PeoplePlus segment is a provider to both Central and Local Government, providing a range of services to help and support in the Employability (Welfare to Work), Communities and Skills arenas.
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