Strong cash generation after upbeat H1
Gattaca is the UK's #1 specialist engineering (69% NFI) and #6 technology (31%) recruitment agency, providing contract, temporary and permanent staffThe fundamentals here for staffing providers are still in decent shape. UK unemployment (at 3.9%) remains at levels not seen since 1975, while consumers continue to spend thanks to record low interest rates, rising wages and modest inflation.
In fact this morning, STEM recruitment specialist Gattaca reported another positive set of numbers, delivering H1’19 NFI up 1.5% to £36.5m, a 14% jump in EBITDA to £8.4m, diluted adjusted EPS up 13% to 15.8p and a spectacular reduction in net debt to £27.8m vs £40.9m in Jul’18 & £36.2m 12 months’ ago.
The latter driven by excellent cash generation due to tight working capital management (+£6.5m - debtor days at 46 vs 52 LY), seasonality, £0.4m lower opex (staff & property), £3.5m unwind from discontinued operations, efficient tax planning (re £0.1m WHT vs £1.4m LY) and higher NFI conversion at 21.5% vs 19.0% LY. Likewise, there was a significant decline in headcount to 736 (vs 810 July’18 & 870 Jan’18) - further improving NFI/employee and de-risking our estimates for the rest of the year & beyond.
How does this compare with the rest of the industry? Not surprisingly there is still work to be done - ie in order to return to historical LFL norms and in line with peers. Yet nonetheless, 1.5% NFI growth is the best performance for more than 4 years, and momentum is undoubtedly ticking up.
For now we have decided to hold the FY19 estimates intact - cognisant of the wider economic uncertainties (eg trade tariffs, Brexit, slowing EU output, etc). Equally though, we recognise that the FY19 NFI, adjusted EBIT and PBT targets of £72m, £13.m and £10.9m respectively (rising to £74.1m, £14.0m & £11.8m in FY20), are undeniably conservative. Meaning there may be a chance to upgrade as the year progresses – ie in the absence of any macro induced wobbles and/or other adverse events.
We reiterate our 185p/share valuation.
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.
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