Gattaca: The tide is turning
Despite Friday’s weaker-than-expected trading update, where our FY17 adjusted PBT and EPS estimates were trimmed 15% to £16.7m (£7.4m H1) and 35.0p (16.1p) respectively, the Board this morning reiterated its view that business/candidate confidence is tentatively recovering after June’s shock BREXIT vote – backed up by sequential improvements in LFL NFI (constant currency) with Q3 currently tracking at -2% (vs -3% Q2 and -5% Q1) and Q4 predicted to be slightly up again.Structurally, we believe Gattaca is ideally placed to benefit from rising global spend on infrastructure (Heathrow, Hinkley Point, Crossrail 2, HS2, rail electrification, smart cities), engineering and technology (eg Cyber security, IoT, Cloud, 5G, autonomous vehicles), augmented by X-selling synergies, expansion abroad and the ongoing adoption of IT/Telecoms within its other key verticals of Automotive, Aerospace, Defence, Energy and Maritime.
In fact the wider UK jobs market also appears getting its mojo back, as evidenced by Robert Walters, Michael Page and Hays, all posting better numbers last week. Admittedly, there might be a minor dip in hiring over the next 2 months as a consequence of the forthcoming General Election. Yet, further out this could actually galvanise the country, especially if the Conservatives (as Pollsters envisage) win a thumping majority - which is probably why the Pound jumped almost 2% (vs $) after Tuesday’s announcement.
Nothing is 100% cast-iron, but for Gattaca we believe there is minimal risk of a dividend cut, based on the solid economic backdrop, 1.5x EPS cover, comfortable 1.7x net debt/EBITDA levels, significant un-utilised banking facilities (£75m invoice discounting & £30m RCF) and recent completion of the Networkers restructuring. Moreover, excluding one-offs, the business as a whole is set to generate between £10m-£11m of underlying cashflow (post capex, tax & interest) this year. Encouragingly, the Board have today maintained the 6p interim pay-out.
In terms of the H1 results, underlying EBIT fell 21% to £8.0m, due to the decline in NFI (-4% LFL constant currency to £35.4m), impact on operational gearing and “mixed†conditions across most Engineering (-4% to £21.1m) disciplines (excluding Technology/Aerospace), where delays were experienced at Network Rail and Highways England.
Putting all this together from an investment perspective, we think the stock at 280p represents good value, trading on FY17 EV/EBITA and PER multiples of 6.9x and 8.0x, whilst offering a sector-leading 8.2% dividend yield.
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.
Equity Development enables companies to become better understood and supported by investors. Since our launch in 1996 we have consistently focused on helping our clients improve their communication and relationships with both existing and potential shareholders. Our clients have come from a wide variety of sectors and domiciles, are both private and quoted and range in size from micro-cap to $multi-billions. We offer free access to company research notes written by experienced analysts. These notes include detailed forecasts, financial models and a fair value. We host regular Private Investor Forums at which investors have the opportunity to hear company directors present, and to ask questions. These are free to attend. We broadcast live Webinars with company management that include active Q&A. We also make the recordings available online. We arrange face to face meetings between private investors and company management. We are active users of Twitter, commenting daily on company news, share price moves, Directors’ Dealings, Equity Development Research Notes & Events.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.