Ticker: GATC Exchange: AIM

Gattaca, formerly listed as Matchtech Group, has over 30 years' experience providing niche recruitment services to the engineering, technology, professional staffing and the employability & skills markets.  The Group is recognised as the UK's leading specialist recruitment agency providing contract, professional contract and permanent staff.

Latest Reports

COVID-19 infects global recruitment sector

Published: 27th March 2020
Don't be surprised if like me you're out of breath due to the mountain of recent COVID-19 announcements. The pandemic has already paralysed large swathes of the global economy, and is now forcing other businesses to slash discretionary costs, freeze hiring, shed staff and hunker down.
Today Gattaca also said that it too was being affected by this unprecedented CAT 5 economic hurricane. The crisis will ultimately blow over though. And once it does, those quality firms serving growth markets should emerge fitter. We saw this during the 2008-10 Great Financial Crisis, and believe it will happen again, with the business proving to be not only one of the survivors, but also a winner.
Indeed, the over-arching message from this morning’s H1’20 statement is that, Gattaca is well prepared, ahead of the curve and has stress tested the ‘worse-case’ scenarios. Here adjusted net debt (including £16.0m of non-recourse finance) fell by £5.7m to £19.1m as at Jan’20 from £24.8m only 6 months earlier.
Elsewhere, overall LFL NFI fell -11.9% to £32.2m (£36.5m LY), due to softer than predicted worldwide demand - particularly International (-20.9% LFL NFI to £4.0m: -14% ex China), UK Technology (-25.0% to £4.8m, headcount reductions) and to a lesser extent UK Engineering (-6.8%, £23.4m). 
Similarly adjusted EBIT/NFI conversion came in at 11.2% (vs 21.5% LY) with the effective tax rate rising to 32.7% (24.4%), as overseas losses could not be recovered. All told, leading to a decline in diluted EPS from 15.8p to 5.5p.
The Board have sensibly withdrawn FY20 guidance. Meaning we’ve retracted our forecasts too - ie until there’s greater clarity surrounding COVID-19. But believe at 45p, the stock is attractively priced for patient risk tolerant investors - trading on a trailing EV/NFI multiple of 0.5x compared to typical industry multiples pre COVID-19 crisis of between 0.7x – 2.0x.
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Tough 1st half due to challenging conditions

Published: 29th January 2020
Let’s make no bones about it, the UK recruitment sector has been hit by a ‘perfect storm’ over the past 6 months. Brexit, a snap General Election, delays to major infrastructure projects (eg HS2), falling car sales, a manufacturing recession and lower aerospace orders, reflecting the temporary halt in production of the Boeing 737 MAX.

In fact, we heard as much on Monday, when STEM rival SThree warned that UK NFI had fallen -11% in the quarter ending Nov’19. Similarly today, Gattaca reported that its UK NFI had declined -11% for the 5 months to Dec’19, and now anticipates FY20 adjusted PBT to come in at c. £6m vs consensus of £10m.

Clearly this is disappointing, however it’s not all bad news. Firstly, the lower activity levels mean there is likely to be a working capital unwind this year, which we reckon will reduce FY20 net debt to £25m (or 2.7x EBITDA) vs £30m before. Next, additional cost & cash savings are being considered that would also hold the group in good stead, once this mini Cat-1 squall has blown itself out.

Lastly, we think conditions should improve next year, with FY21 PBT forecast to climb to £10m, closing with net debt of £19.4m (1.5x EBITDA). Sure our valuation drops from 160p to 135p/share, yet equally we believe there is still considerable upside, with the stock (at 105p) trading on a ‘trough’ PER of 7.7x vs 10.4 peers.
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Recovery continues despite macro headwinds

Published: 6th November 2019
Last month, 3 of the largest recruitment firms (Michael Page, Hays & Robert Walters) all warned that their results were being impacted by the ongoing global uncertainty, especially in the UK (re Brexit).

Likewise this morning, despite reporting positive FY19 numbers, Gattaca said that it too had experienced some “softening” in Q1’20. Clearly this is frustrating, yet equally it’s not the end of the world either, especially since the Board has master-minded a ‘back-to-basics’ recovery over the past 18 months. Closing unprofitable units, re-energising the business, focusing on faster expanding regions/disciplines and refreshing management.

Indeed FY19 adjusted PBT climbed 4.6% to £11.4m (vs £10.9m LY), whilst net debt fell 39% to £24.8m (vs £40.9m LY), or 1.7x EBITDA. Plus, we believe Gattaca now has the right foundations and geographical footprint from which to achieve its strategic goals.

That said, new business development and sales resource is being selectively added to further accelerate top line growth. Meaning that, alongside the more challenging conditions, we’ve prudently cut our FY20 LFL NFI, PBT and EBIT/NFI estimates to 0.3%, £10.0m (-15%) and 17.0% respectively. In turn, reducing the valuation from 200p to 160p/share.

Nonetheless, the long term fundamentals (re STEM verticals) remain sound, and we believe the stock could potentially double over the next 3 years. Assuming of course there is no further deterioration in the macro environment. 

Finally, management will continue to control costs/cash tightly in light of the darker economic clouds, and we think will seek further savings with the view to self-fund some of the planned growth.

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Strong cash generation after upbeat H1

Published: 3rd April 2019
Gattaca is the UK's #1 specialist engineering (69% NFI) and #6 technology (31%) recruitment agency, providing contract, temporary and permanent staff.

The 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.
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Turn-around is bang on track

Published: 7th February 2019
Gattaca is the UK's #1 specialist engineering (60% NFI) and #6 technology (21%) recruitment agency, providing contract, temporary and permanent staff.

Given all the Brexit related rock-throwing and in-fighting at Westminster, it is a breath of fresh air to hear some positive corporate news. This morning STEM recruitment specialist Gattaca said that it’s ‘back to basics’ turnaround plan is right on track. Indeed, the business delivered its highest level of LFL NFI growth since 2014, coming in at £36.6m (+2%) for H1’19 vs £36.0m LY.

The standout performer was ‘International’, up +15% (vs 5% FY18) to £5.1m driven by China and the Americas. Ably supported by +3% growth (1% FY18) at UK Engineering (£24.9m), reflecting “strong” demand within Infrastructure (incl RSL), Maritime and Engineering Technology – partly offset by Automotive, where diesel sales declined following the introduction of tighter emission standards alongside softer consumer confidence. 

Better still, net debt closed Jan’19 down to £29m from £40.9m in Jul’18 and £36.2m 12 months’ ago. Some of this was simply timing/seasonal differences, yet nonetheless we are encouraged by the deleveraging, and have lowered our FY19 target to £38.5m (from £41m) – representing a net debt/EBITDA ratio of 2.7x.

We understand there has been another significant headcount reduction in H1’19 (810 July’18 vs 870 Jan’18), underpinning our estimates for a modest rise in FY19 EBIT/NFI conversion to 18.2% (vs 18.1% LY).

Looking ahead, we have held our FY19 numbers for NFI, PBT and adjusted EPS (diluted) at £72.0m, £10.9m and 23.2p respectively – but nudged up the valuation to 185p/share in light of the robust cash generation. What’s more, we think the stock at 113p is materially undervalued - trading on FY19 EV/EBIT and PER multiples of only 5.9x and 4.9x vs 7.7x and 9.1x for the wider staffing sector.

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Getting its ‘Mojo’ back

Published: 8th November 2018
Gattaca (c.810 staff) is the UK's #1 specialist engineering (60% NFI) and #6 technology (21%) recruitment agency, providing contract, temporary and permanent staff (Source: Recruitment International). It derives 30% of NFI from overseas (including international placements supplied from the UK), and circa 72% from temps, with the remaining 28% coming from permanents.

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.

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Decisive action being taken

Published: 3rd September 2018
Gattaca is the UK's #1 specialist engineering and #5 technology recruitment agency, providing contract, temporary and permanent staff

As indicated at the August pre-close trading update, the Board are wasting no time to turnaround the less profitable and/or loss making parts of the group. First on the list are those activities/territories that possess insufficient critical mass, deteriorating fundamentals and/or unattractive cash generation.

Consequently this morning the company announced it was exiting from its Contract Telecoms Infrastructure interests in Africa, Asia and Latin America as well as Dubai, Kuala Lumpur and Qatar. Furthermore, in line with the lower associated NFI (contributing c. £7m in FY18) GATC’s London and Bromley offices are to be consolidated into the London Cotton Centre site to trim central overheads.

We think today’s news makes perfect sense, since it not only provides a substantial working capital boost (c.£7m), but also reduces the effective tax rate from c.35% FY18 to c.25% thanks to the reduction in non-recoverable withholding tax. Which, on top of a better than expected July’18 closing net debt position of £41m (vs £46m before), means that £4m of positive cashflow is forecast to be generated in FY19 alone - despite absorbing £3m of one-off restructuring costs.

Elsewhere, we have reduced our FY19 NFI and adjusted PBT expectations by £7.5m to £72.1m and £1.7m to £10.9m respectively, but held diluted EPS broadly flat at 25.0p (vs 25.1p before). With our valuation nudging up slightly from 175p to 180p per share.

We look forward to hearing greater detail at the prelims on 8th November, along with an update on the new CEO appointment. In the meantime, we note that the shares are attractively priced - trading on FY19 multiples of 6.9x EV/EBIT and 5.7x PE vs sector averages of 9.6x and 12.1x

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Base camp reached and business stable

Published: 1st August 2018
Like its namesake movie - where the central character overcomes testing conditions – we think Gattaca will also emerge much fitter after its recent lean spell. Encouragingly the company has made a good start, albeit there is still plenty of climbing ahead.

With regards to trading, the Board reported this morning that FY18 NFI grew 1% LFL to £78.8m (H1 +2%: H2 flat) with adjusted PBT “broadly in line with expectations”. We interpret this as c.£12.6m (vs ED £13.0m, £16.2m FY17) – implying H2 PBT of £5.7m (vs H1 £6.9m), 18% FY18 NFI conversion (vs 23% FY17) and £1.4m of annualised cost savings.

Elsewhere, net debt closed July slightly lower than anticipated at £46m (ED £48m; FY19 £40.3m), despite a £3.5m final payment related to the Feb’17 RSL acquisition – leaving gearing at 3x EBITDA. The appointment of a new CEO is at an “advanced stage”, whilst the Strategic Review is “nearing completion”. 

Here, we envisage further restructuring at UK Telco (FY18 NFI fell -24% LFL; -19% H1 and est. -29% H2), alongside self-help measures within Contract (-5% LFL to £56.7m), central resources and a few overseas territories. 

Let’s not forget though, that Gattaca is a fundamentally sound business. It is enjoying profitable and expanding positions in UK Engineering (+1% LFL NFI to £47.4m eg Converged Technologies, Infrastructure), International (+7% £14.9m eg North America) and UK IT (+4% eg Cloud, cyber). It is also well balanced across permanent (+19% LFL to £22.1m) and contract (-5% £56.7m) placements to take advantage of the economic cycle. The improvement in ‘Perm’ is partly attributable to signing a number of ‘high quality, multi-year’ Recruitment Process Outsourcing (RPO) clients.

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Humbled, yet still fundamentally sound

Published: 18th April 2018
Gattaca, employing 870 staff, is the UK's #1 specialist engineering and #5 technology recruitment agency, providing contract, temporary and permanent staff.

After today’s interim results and 3rd profit warning within a year – this time reducing FY18 PBT expectations by approx. 15% (ED -12% at £13.0m vs £14.8m) - management are the first to admit that mistakes have been made. Nonetheless the Board, being their own harshest critics, know what needs to be done and are fully committed to rectify the situation. To us, despite the disappointing share price, Gattaca istill appears a fundamentally sound business with attractive growth prospects.

Indeed in its UK heartland (82% H1’18 NFI), the firm continues to out-perform rivals (H1’18 NFI 1.2% LFL vs 0.1%) amid a “challenging” backdrop . Across the pond, the Americas is posting “excellent” LFL NFI growth (+30% to £3.7m) on the back of a tight labour market, Texas’ “high-tech IT” boom and the launch the Matchtech brand in Energy (US Shale) and Engineering. That said, this international success has been tempered by difficulties in Asia (-14%), continental Europe and South Africa (-25%), which has led to closures of the Singapore & Munich sales offices that lacked “critical mass”.

UK Engineering (+3% to £24.2m) was boosted by strength in Converged Technologies (+24%), Automotive (+15% - electric/autonomous vehicles, telematics, etc), Smart factories (Production 4.0), Alderwood (+35%: apprentice training) and connected cities/infrastructure. But  UK IT (+3%) continued to benefit from Cloud implementations, albeit UK Telecoms (-19%) suffered from pricing pressures and lower OEM demand (eg Huawei and Ericsson), reflecting delayed roll-outs of 5G/4G wireless networks, and necessitating a leadership change post period end. Going forward, we reckon management will be far less tolerant of persistently under-performing units.

Not surprisingly something has had to give, and the proposed interim dividend of 3p (vs 6p LY) has taken some of the strain. Similarly going forward, the pay-out policy has been revised with the aim of distributing 50% of “through-cycle” statutory earnings, assuming net debt declines of £3m+ pa from FY19 onwards. Or in other words, rebasing the FY18 payment to 9p (vs 23p), representing a CY yield of 4.9%.

With regards to Q3 trading, February & March have “broadly” been “in line with expectations”, albeit macro conditions have not yet caught up with previously optimistic Q4’18 assumptions - hence the Board decided this morning to realign FY18 PBT guidance. 

Likewise, we have erred on the side of caution with new forecasts and reduced our valuation from 295p to 240p/share. The stock at 185p is on a low rating, trading on FY18 EV/EBIT and PER multiples of 7.1x and 6.8x respectively, whilst paying a hefty 4.9% dividend yield.

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2% LFL growth in NFI albeit at lower margins

Published: 8th February 2018
Gattaca is the UK's #1 specialist engineering and #5 technology recruitment agency, providing contract, temporary and permanent staff (source: Recruitment International). It derives 18% of NFI overseas (excluding international placements supplied from the UK), and circa 72% from temporary contractors (9,500 on assignment), with the remaining 28% coming from permanents. 

Yesterday’s trading update from Gattaca (1 day earlier than expected) revealed healthy cash inflow with net debt closing Jan’18 at £37m (vs £40.3m in July) alongside encouraging overall NFI progression, up +2% to £39.8m vs -4% FY17 (constant currency). The latter driven by UK Engineering (+3%, £24.1m), International (+7%, £7.3m - eg Texas/Hong Kong) and permanents – but partially offset by continued weakness in Technology (-5%, £8.4m) especially Telecoms infrastructure.

Gross margins, however, dipped mainly due to competitive pressures which, on top of higher staff/support expenses, means that we estimate H1’18 adjusted PBT broadly declined to around £6.5m-£7.0m (vs £7.4m LY). As a result, the Board is now right-sizing operations and resetting the bar in terms of FY18 PBT – predicted to come in at “15% below (or £14.8m) previous expectations” of £17.4m (vs £16.2 LY) on NFI of approx £80.5m.

Some of these cost reductions will benefit H2, with the aim of ultimately saving perhaps north of £2.0m pa, at a one-off cost of ~£1m. Similarly the dividend payout is being re-aligned to reflect a more sustainable yield (CY 5.3%) - equivalent to 2x cover (vs 1x statutory EPS LY) to help trim net borrowings (estimated y/e July’18 at £42m). 

With regards to personnel, CEO Brian Wilkinson has resigned with immediate effect, with a successor now being sought from in/outside the organisation. In the meantime, Chairman Patrick Shanley is working closely with COO Keith Lewis, CFO Salar Farzad and the wider Executive team, to ensure the NFI momentum is maintained. 

Factoring all this in, our valuation decreases from 380p to 295p/share – nonetheless still offering considerable potential upside on successful excecution, both on an absolute and relative basis. We look forward in hearing further details at the interims on 19th April.

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'Minimal' exposure to Carillion

Published: 17th January 2018
Gattaca is the UK's #1 specialist engineering and #5 technology recruitment agency, providing contract, temporary and permanent staff (Source: Recruitment International). It derives 21% of NFI overseas (excluding international placements supplied from the UK), and circa 75% from temporary contractors (9,500 on assignment), with the remaining 25% coming from permanents. 

Carillion’s high profile bankruptcy on Monday has certainly hit the headlines. Politicians on both sides of the aisle have been throwing stones at one another. An official investigation into the fiasco has been announced. But perhaps worst of all, the future of 10,000s of hard-working employees, pensioners and businesses (eg Balfour Beatty, Speedy Hire, Galliford Try, etc) have been affected.

However, contrary to yesterday’s 10%+ plunge in the stockprice, Gattaca said this morning that its net balance sheet exposure to Carillion was “less than £100,000” – with existing contracts contributing Net Fee Income of around £0.5m pa.  

To us, given Gattaca is forecast to deliver FY18 NFI of £79.3m (£74.7m LY), then this is not material. Sure, it’s something to watch, but management have been carefully monitoring the situation for some time, and accordingly arranged credit insurance to cover any bad debts. Moreover they have been “actively engaging with the relevant Carillion counterparties to ascertain how to support the related underlying projects” in order to ensure continuity of service.

Consequently, we make no change to our numbers or 380p/share valuation, and in fact have been impressed by the Board’s risk management strategies and prompt actions. Indeed we look forward to the H1’18 pre-close trading statement on 8th February, where we expect to hear news of a gradually improving demand picture - led by continued strength in International and UK Engineering, alongside further recovery in UK Technology.

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Full year results webinar, 14th November 2017

Published: 15th November 2017
Brian Wilkinson, CEO and Salar Farzad, CFO run through the group's recent results announcement. 

Patient investors paid 7.5% to wait

Published: 3rd August 2017
Gattaca is the UK's #1 specialist engineering and #5 technology recruitment agency, providing contract, temporary and permanent staff. It derives 30% of NFI overseas, and 75% from placing contractors (9,500 on assignment), with the remaining 25% coming from permanents.

Like most good things, Gattaca’s transition from UK engineering staffer to international recruitment specialist of hard-to-find STEM candidates (Science, Technology, Engineering and Mathematics) is taking slightly longer than anticipated. Not because of any strategic or execution misstep, but largely because of more challenging conditions, which have impacted Net Fee Income (NFI) over the past 3 years. However this ‘demand drought’ will eventually break. And when it does, Gattaca is in our view much better placed to ‘make hay’, underpinned by its wider global footprint, scalable business model and focus on the STEM verticals.

Indeed, in 2016 research by Engineering UK predicted an extra 1.8m engineers and technically qualified staff would be required by 2025, with a 20,000 pa shortfall in the number of students being educated in Britain. Structurally too, investment should accelerate both overseas (eg Trump’s US Infrastructure Bill) and domestically (eg Heathrow, Hinkley Point, Crossrail 2, HS2, smart cities) - augmented by continued spend in engineering, technology (eg Cyber security, IoT, Cloud, 5G, autonomous vehicles) and the adoption of IT/Telecoms within Automotive, Aerospace, Defence, Energy and Maritime.

Perhaps not surprisingly, the overall message was in today’s update somewhat mixed. On the one hand, FY17 reported NFI was up 2% (flat constant currency) to £74.8m (£73m LY) – helped by the £11.5m acquisition of RSL in February. Trading was also said to be “broadly in line with market expectations”, which we interpret as delivering adjusted PBT of circa £16.2m vs consensus of £16.5m-£16.7m. Despite encouraging recent performances in North America/Asia, together with sequential NFI improvements (ED estimates: Q1 -5%, Q2 -5%, Q3 -4% and Q4 -2.4%), we have conservatively shaved our FY18 adjusted PBT from £20.2m to £18.3m, primarily due to ongoing UK uncertainty.

In light of our revised FY18 EPS forecast of 37.5p (vs 41.7p before) our valuation has accordingly dropped to 390p/share (vs 425p before), based on a 9x EV/EBIT multiple, discounted back at 12% and adjusted for net debt. Currently the stock at 305p is trading on low historical FY17 EV/EBITA and PER multiples of 8.0x and 9.0x, whilst paying a sector leading 7.5% yield.

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View the Results Webinar

Published: 24th April 2017
You can now hear Brian Wilkinson, Chief Executive Officer, and Tony Dyer, Chief Financial Officer, present the interim results for the six months to 31 January 2017 on behalf of Gattaca.

To view simply click on the video below. 

Solid H1 results, synergistic acquisition, on track to hit FY17 consensus

Published: 2nd February 2017
Gattaca is the UK's #1 specialist engineering (60% group NFI) and #5 technology recruitment agency, providing contract, temporary and permanent staff. It derives 32% of NFI overseas (albeit mostly still invoiced from UK), and 74% from placing contractors (circa 9,000 on assignment), with 26% coming from permanents. 

Today, in a pre-close trading update it reported robust 1st half figures that are in line with FY17 expectations, together with sealing a chunky earnings enhancing acquisition. Indeed, as a consequence of the deal we have nudged up our adjusted PBTA targets for this year and next, by £0.8m (or 4.2% to £19.6m) and £1.9m (9.6% to £21.9m) respectively

In terms of specifics, H1 NFI declined modestly by -2% to £35.1m (£35.9m LY), with the UK falling -4%, partly offset by International (+2%) thanks to sterling weakness. Encouragingly too, the figures improved sequentially (-3% Q1 vs -1% Q2), and were generally better in the UK than achieved by several of its rivals.

In constant currencies (ie excluding forex benefits) overall NFI dropped -5%, reflecting softness across most Engineering (-4% to £21.1m) disciplines (excluding Technology and Aerospace), where hiring decisions were said to be “elongated” but pleasingly vacancy flow remains “strong”. Elsewhere, Technology NFI fell -6% to £14.0m, with IT (+1%) continuing to benefit from refocusing on more tightly defined verticals (eg Cloud, Cyber-security), albeit negated by a -14% decrease in Telecoms, where volumes were hit by less demand on some international projects.

Separately, on the M&A front the Board announced this morning that it had acquired (post period end) 70% of UK based Rail, Power and Built Environment recruitment specialist, Resourcing Solutions Limited (RSL) for £6.9m in cash. The purchase is said to be “immediately earnings enhancing and will contribute positively to operating margins and cash generation”. Here we reckon £500k pa of cost synergies have already been identified – much of which should flow through to EBITA in FY18 – with RSL anticipated to deliver underlying EBITA of £2.0m on NFI of £7.5m (£7.2m) for the year ending 31 January 2017, of which around 88% is derived from contractors.

When added to the base business the stock at 300p trades on a meagre forward PER of 7.3x, which to us looks undemanding, particularly in light of its corresponding CY unlevered cashflow and dividend yields of 11.1 % and 7.8% (1.75x covered). We increase our group valuation to 475p/share (+6.2% vs 450p before). 
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View the Results Webinar

Published: 4th November 2016
You can now hear Brian Wilkinson, Chief Executive Officer, and Tony Dyer, Chief Financial Officer, present the preliminary results for Gattaca plc and answer investors' questions.

To view simply click on the video below.

'Solid' FY 16 with strong cash generation

Published: 3rd November 2016

Gattaca is the UK's number 1 specialist engineering (60% group NFI) and number 5 technology recruitment agency, providing contract, temporary and permanent staff. It derives 32% of NFI overseas (albeit mostly still invoiced from UK), and 74% from placing contractors (circa 9,000 on assignment), with 26% coming from permanents. The global engineering and technology recruitment markets are valued at circa $26bn and $57bn respectively.

In terms of this morning’s “solid” FY16 numbers, adjusted NFI jumped 38% to £72.4m primarily thanks to the Networkers acquisition. Stripping out M&A, LFL growth was flat at 0% (see below), with a 6% increase in Engineering (Infrastructure up 18%, with Oil & Gas and Maritime down) being offset by a similar decline in Technology. The latter seeing a 9% rise in Telecoms reversed by a 17% fall in IT.

FY16 adjusted PBT and EPS came in at £20.5m (+26%) and 44.3p (+1%) respectively, which was in line with our forecasts of £20.4m and 43.7p. The dividend was raised 5% to 23.0p, equivalent to a 6.8% historic yield.

Post BREXIT, Bank of America Merrill Lynch have reported that institutional cash positions currently sit at 15 year highs: a sure-fire sign that sentiment is too bearish. Gattaca appears overly impacted by this ‘wall of worry’ trading on a prospective PER of 8.5x and offering a thumping 6.9% dividend yield (1.7x covered). 

FY17 has started more slowly than anticipated, with total NFI subsequently dipping to -3% in Q1’17 (Est split -5% UK and +2% overseas), due to an element of caution in client hiring plans. But we believe conditions will eventually pick-up as literally thousands of engineers will be needed to support the new £17.6bn runway at Heathrow, the £18bn nuclear power station at Hinkley Point, and the £42bn HS2 rail link between Birmingham and London. 

Furthermore, extra headcount is presently being deployed overseas where stronger growth is being achieved. In particular, we reckon a sea-change could be coming in the US, irrespective of which candidate wins the Presidential Election next Tuesday, since much of the country’s road, bridge, rail and transport networks are crumbling, with estimates from the American Society of Civil Engineers suggesting $3.32trillion of infrastructure spend is required between 2016 and 2025.

Going forward, in light of the weaker Q1’17 our FY17 adjusted EBIT has been trimmed by 4% to £19.7m (from £20.5m), with the share price fair value being similarly eased from 460p to 450p, still materially above current levels. The CEO also stated ‘ great confidence in the Company’s future prospects.’

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Solid H2 outperforming UK staffing market

Published: 4th August 2016

Matchtech is the UK's number 1 specialist engineering (60% group NFI) and number 3 technology (split 23% IT & 17% Telecoms) recruitment agency, providing contract, temporary and permanent staff. 74% of NFI comes from placing contractors (9,000 on assignment), with the remaining 26% from permanents. 

Several economists think there will be a recession post BREXIT, albeit we suspect there will be only a temporary dip in GDP, with normal activity levels returning once the initial shock has passed. Regarding Matchtech we would argue that the business is far less cyclical than the broader staffing sector, since most of its infrastructure, automotive, telecoms, IT/software and aerospace customers are enjoying secular growth drivers, with exporters receiving a further boost from Sterling's 10% devaluation.

Even if we are wrong and there is a prolonged decline in output, then this is still likely to affect permanent placements far more than MTEC's approx. 9,000 strong contractor base - many of whom are working on long term government-funded capital projects (eg Crossrail) and/or infrastructure programmes within regulated industries (eg water, rail, etc).

This downside resilience was again demonstrated this morning, following news that adjusted PBTA for the year ending July 2016 would be in line with management expectations, with LFL FY16 NFI up 1% to  £72.6m - thanks to a solid second half (+3% vs -1% in H1'16) on the back of continued strong demand for skilled engineers (H1: 7%, H2: 5%) even after the EU Referendum.

Overall this was a very creditable performance, especially given the headwinds experienced elsewhere in the industry. Nonetheless, we have shaved our FY16 adjusted PBTA and diluted EPS numbers (excluding discontinued activities) by 4% to £20.4m (vs £21.3m) and 43.7p (vs 45.6p) respectively. 0ur adjusted FY17 PBTA forecast has been trimmed too - this time by 14% to £19.7m (vs £22.9m) reflecting relatively flat underlying NFI growth of 0.6% to £73.0m vs 1% LFL in FY16. Accordingly, our share price target falls from 621p to 460p per share. 

On valuation the stock at 345p appears cheap, trading on forward EV/EBITA and PE multiples of 6.8x and 8.2x respectively vs 8.4x and 12.0x for the peer group average, as well as offering a 6.7% dividend yield (1.8x cover), supported by healthy cash generation, attractive NFI conversion rates and a robust balance sheet.

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Price target raised 3% to 621p/share

Published: 14th April 2016

Matchtech is the UK's number 1 specialist engineering (60% group NFI) and number 3 technology (split 23% IT & 17% Telecoms) recruitment agency, providing contract, temporary and permanent staff. After the £66.8m acquisition of Networkers International a year ago, the group now derives 30% of NFI overseas (albeit mostly still invoiced from UK), and has also become Britain's 5th largest technology agency.

The UK recruitment sector looks oversold. The recent 'air-pocket' slowdown in demand has led to a sharp contraction in valuations, with sector EV/EBITA multiples tumbling 25% on average over the past 6 months from 12.9x to 9.7x. However, with interest rates anchored at 0.5%, real wages rising and unemployment low, then from a macro standpoint - even ahead of the BREXIT vote on 23 June - the UK labour market certainly does not appear to be falling off a cliff. 

Matchtech's results today did show that LFL NFI declined -1% to £35.85m for the 6 months to January 2016, but we think that there are numerous reasons why their results are set to pick up in H2'16 and beyond. In fact, this anticipated improvement is already starting to peek through in the numbers, since on a weekly run-rate basis, underlying LFL NFI actually rose 4% in H1'16 versus H2'15.

Encouragingly, the largest division, Engineering (60% of group), continues to power ahead. Organic NFI climbed 7% to £21.6m in the 1st half, driven by excellent demand from rail, water and commercial property (Infrastructure +19%), coupled with multi-year visibility with regards to projects such as the Thames Tideway Project, Crossrail (phase 2) and the Wessex to Waterloo line upgrades. 

We see Matchtech shares at an inflexion point, apparently missed by the broader financial community. Indeed, we predict LFL NFI will rise 4.9% in H2'16, and climb 3.6% for the full year. As a result the expected NFI growth, combined with the group's operational leverage, are forecast to lift H2'16 and FY16 EBITA to £12.4m and £22.5m respectively - with adjusted diluted EPS coming in at 46.5p (+4.1%).

On valuation, at 470p we think the stock represents good value, trading on miserly FY16 EV/EBITA and PER multiples of 8.0x and 10.3x, on top of paying a sector leading 5.1% dividend yield (1.9x covered). Consequently, based on the lower closing net debt balance and a modest 9.5x FY17 EV/EBITA rating, we have raised our price target from 604p to 621p/share.

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Shaping up for a break-out next 12 months

Published: 5th August 2019
The jobs market is polarizing, as the world continues to transition towards those disciplines enjoying secular growth, such as STEM, cyber-security, Big Data & Artificial Intelligence.
The good news is that this ‘paradigm shift’ plays perfectly into the hands of Gattaca. Indeed this morning the firm said that its leading UK engineering division (70% NFI) had increased FY19 NFI by 5% LFL (7% H2 vs 4% H1, +1% LY & -3% FY17) to £50.0m (£47.5m LY), thanks to robust demand for its Solutions, Engineering Technology and Infrastructure services, especially permanent placements. Implying too that it is not only winning share, but also poised to regain its top tier status.
Sure there is still work to be done – not least in International and Technology, which saw NFI contract in H2’19. Yet despite these temporary headwinds, the group as a whole handily beat our FY19 adjusted PBT (prior £10.9m) and net debt (B4 £38.5m) expectations, coming in at c. £11.3m (ED est.) and £25.0m respectively. Leading us to further upgrade the valuation from 185p to 200p/share.
What’s more we could see the stock’s discount vs peers close relatively quickly. Maybe simply as the macro fog (hopefully) lifts over the next 12 months - triggering a re-rating towards peer averages of 7.5x EV/EBIT, equivalent to a theoretical 230p/share. 
Or perhaps via some form of corporate transaction. Here both Morson (UK STEM recruiter) and HRNetGroup (Singaporean staffer) have recently increased their stakes to 15.1% and 5.5% respectively. Meaning that, given the potential significant synergies of combining with GATC, their presence could both put a floor under the stock, and/or even result ultimately in a hefty takeover premium.
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Preview of first half results

Published: 4th April 2016

Matchtech is the UK's leading specialist engineering and professional services recruitment agency, providing contract, temporary and permanent staff. Net fee income (NFI) is broadly split 60:40 across Engineering & Technology, along with 73:27 for contract & permanents. 

The Chancellor's Budget bought welcome news in terms of HS2/3, Cross Rail 2 and other major infrastructure projects. Also Dyson said that it would be creating another 570 jobs in Malmesbury, after receiving a £16m government grant to develop next generation batteries; whilst Rolls Royce chipped in with 350 new positions at its Derby factory to ramp-up production of Trent XWB aircraft engines. 

This upbeat outlook appears inconsistent with Matchtech's lowly valuation - at 435p the shares trade on forward EV/EBITA and PER multiples of 7.6x and 9.5x respectively, along with paying a 5.6% dividend yield. Only a couple of months ago the company released a positive pre-close statement, reassuring investors that H1'16 results would be "in line with expectations" and "demand for skilled UK engineers remains robust".

Interims are due on 14th April and we expect NFI to climb 59% to £35.7m - excluding the acquisition of Networkers in April 2015, this translates into broadly flat like-for-like comparisons, thanks to strong performances anticipated from Engineering (+7%), Telecoms (8%, 4G/3G) and permanent placements (+4%), offset by weakness in IT (-20%) and lower contractor fees (-3%). 

In terms of the full year outlook, we retain our adjusted FY16 PBTA and EPS forecasts of £21.3m and 45.6p respectively, and reiterate a 604p/share price target - equivalent to 39% upside from current levels. 
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Trading in line with expectations

Published: 28th January 2016

Matchtech is the UK's leading specialist engineering and professional services recruitment agency, providing contract, temporary and permanent staff. After the £66.8m acquisition of Networkers International on 2nd April 2015, the group now derives 30% of NFI overseas, and has also become Britain's 5th largest technology agency.

On the fears of global economic slowdown, we think that  as long as the current volatility subsides over the next 3-4 months, then with the exception of cuts in discretionary expenditure (eg advertising & travel budgets), there should be minimal long term damage to the 'real economy'. A view consistent with this morning's upbeat trading statement from specialist recruiter Matchtech, who we think are a useful barometer of corporate hiring intentions, and hence of future economic activity.

Looking forward, roll-out of services to overseas locations looks promising, with the CEO saying today 'I remain confident that we will convert these exciting opportunities into significant growth over the next few years.'

H1'16 trading was also stated to be "in line with expectations" (FY16 consensus adjusted PBTA of £21.3m) with H1'16 NFI up 59% to £35.7m (including April's £66.8m acquisition of Networkers). On a LFL basis, NFI was broadly flat at -1% YoY, thanks to strong performances from Engineering (+7%), Telecoms (8%, 4G/3G) and permanent placements (+4%), offset by weakness by IT (-20%) and lower contractor fees (-3%). 

H1'16 NFI was up 4% sequentially on H2'15, which - when added to the 5% increase in fee earner headcount (515) since July, and further progress on synergies - bodes well for the future. Indeed almost £2m (up from £1.3m in October) of annualised savings have already been identified from the Networkers deal; with more to come from combining back office functions, and leveraging sales initiatives across different verticals (eg IT and engineering) and geographies (eg Asia & North America). 

In terms of the numbers, we have tweaked our FY16 adjusted PBTA and EPS forecasts down to £21.3m (-1.1%) and 45.6p (-5.2%, reflecting a higher tax rate of 30% vs 27%) respectively. Recruitment sector multiples have dropped from October levels - with our price target duly being rebased from 705p to 604p/share, equivalent to 10x CY EV/EBITA and 13.2x PER. 

At 505p, we still consider the stock good value, trading at a 10%-20% discount to peers, and offering a chunky 4.8% dividend yield that is 1.9x covered.
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The tide is turning

Published: 20th April 2017

Gattaca is the UK's #1 specialist engineering (60% group NFI) and #5 technology recruitment agency, providing contract, temporary and permanent staff.

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.

NB Gattaca management will present to investors via webinar TOMORROW, Friday 21st at 1.15pm   Register here
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Continued uncertainty and greater investment lead to expected “10-15%” reduction in FY17 PBT

Published: 13th April 2017

Gattaca is the UK's number 1 specialist engineering (60% group NFI) and number 5 technology recruitment agency, providing contract, temporary and permanent staff. It derives 32% of NFI overseas (albeit mostly still invoiced from UK), and 74% from placing contractors (circa 9,000 on assignment), with 26% coming from permanents. The global engineering and technology recruitment markets are valued at circa $26bn and $57bn respectively, offering substantial long term potential.
Although there are some promising pockets of demand (eg City recruitment) returning to the UK jobs market post BREXIT, this has not yet fed through into Gattaca’s more specialised Engineering and Technology verticals - with continued “uncertainty” resulting in “elongated hiring decisions and projects being delayed”. Here we suspect some of the headwinds have been caused by temporary scheduling difficulties at Network Rail and Highways England, along with recent softness in Telecoms (re Ericsson and Huawei exposure). 

Indeed we understand Q3 LFL NFI growth (constant currency) is presently tracking at similar levels to Q2’s -2% decline, albeit encouragingly “the medium-term outlook remains positive with some signs of confidence in recent weeks”. Whilst today's update is disappointing, we remain confident there is still significant value for long term investors, given that the company should be a direct beneficiary of future increased infrastructure (eg CrossRail 2, HS2, Hinkley Point and the 3rd runway at Heathrow) and technology spend worldwide.

The news has led to a decrease in our adjusted PBT estimates for this year and next by -£2.9m (-15%) and -£1.7m (-8%) to £16.7m and £20.2m respectively. Net debt is anticipated to close July 2017 at £32.4m, equivalent to 1.7x EBITDA.

With the full year benefits of February’s £6.9m RSL acquisition expected in FY18, our valuation falls 8% to 425p/share from 475p previously. In our view, the stock at 270p offers considerable upside to fair value, trading on trough EV/EBIT and PE multiples of 6.7x and 7.7x respectively, whilst also paying a 9% dividend yield (1.5x covered). 
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