Gattaca

www.gattacaplc.com 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

 
Humbled, yet still fundamentally sound
Published: Apr 19 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.
 
2% LFL growth in NFI albeit at lower margins
Published: Feb 08 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.
 
'Minimal' exposure to Carillion
Published: Jan 17 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.
 
Full year results webinar, 14th November 2017
Published: Nov 15 2017

Brian Wilkinson, CEO and Salar Farzad, CFO run through the group's recent results announcement. 
 
Positive trends continue
Published: Nov 10 2017

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. 
After the shocks of last year’s BREXIT vote and the May general election, there are now tentative signs that UK business confidence is recovering, as companies recognise they can’t ‘save themselves to prosperity’. This is clearly important for cyclical industries like recruitment and Gattaca, which saw NFI fall sharply in H1’17 (-5% for the 6M ending Jan’17), and another -3% in H2. Encouragingly though, the pace of decline slowed sequentially (ED est: Q1 -5%, Q2 -5%, Q3 -4% and Q4 -2.4%), and we think will turn positive (+1.0% to £79.4m) for FY18 as a whole.
This is specifically true for its leading UK Engineering division (59% proforma NFI), which in FY17 dropped -3% LFL to £43.1m (-4% H1, -2% H2), but posted only a small -1% contraction in Q4, and since July, “has shown modest growth” in the first 2 months of the year. Driven by successes in the ‘EngTech’, ‘Water AMP6’, ‘Aerospace’ and ‘Renewable Energy’ verticals we expect NFI in FY18 to come in at £47.1m, up 9.4% (including RSL) or 0.5% LFL. 
Similarly there have been favourable developments internationally (20% NFI), especially in the Americas, which exited Q4 27% higher and Asia up 14%. Elsewhere, new offices in Munich and Madrid were established to support Unisys’ pan-European managed service contract, along with taking advantage of opportunities in automotive, aerospace, FinTech, IT and SAP.
Overall, adjusted EPS (diluted after RSL minorities) fell -23.4% to 33.8p (post RSL minorities) vs 44.1p LY, with the 23p dividend (7.4% yield) held flat reflecting Board confidence. Equally though, we have prudently nudged down our FY18 EPS forecast to 36.0p (vs 37.5p before), with our valuation likewise declining to 380p/share. The stock at 310p seems to represent good value, trading on forward EV/EBITA and PER multiples of 7.2x and 8.6x, whilst paying an industry leading 7.4% yield. 
NB the management of Gattaca will present via webinar to investors next Tuesday, 14 Nov at 1.45pm. Please register here: 
https://register.gotowebinar.com/register/7961341981994572802
 
Patient investors paid 7.5% to wait
Published: Aug 03 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.
 
View the Results Webinar
Published: Apr 24 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. 

ARCHIVE

2017
The tide is turning
Published: Apr 20 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
Continued uncertainty and greater investment lead to expected “10-15%” reduction in FY17 PBT
Published: Apr 13 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). 
Solid H1 results, synergistic acquisition, on track to hit FY17 consensus
Published: Feb 02 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). 
2016
View the Results Webinar
Published: Nov 04 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: Nov 03 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.’
Solid H2 outperforming UK staffing market
Published: Aug 04 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.
Price target raised 3% to 621p/share
Published: Apr 14 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.
Preview of first half results
Published: Apr 04 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. 
Trading in line with expectations
Published: Jan 28 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.
2015
Matchtech Group - Equity Development Investor Forum November 2015
Published: Nov 23 2015

Brian Wilkinson, Chief Executive Officer and Tony Dyer, Chief Financial Officer discuss Matchtech's results and provide an update on the recent transformational acquisition of Networkers.
41% undervalued and offering a 4.8% yield
Published: Oct 29 2015

Matchtech is the UK's leading specialist engineering and professional services recruitment agency, providing contract, temporary and permanent staff. In early April, this year, it acquired Networkers International for £66.3m. This was a key strategic move for Matchtech, to help it respond to, and anticipate the increasing convergence of the skill sets in its three core verticals of Engineering, IT and Telecommunications, as well as the increasing globalisation of large clients' workforces. The acquisition of Networkers helped Matchtech address both of these important trends more rapidly, more cost-effectively and with less risk than the alternative of organic growth to achieve the same result.
Today's final results (for the year to July 2015) were in line with market expectations, showing adjusted, diluted EPS up an impressive 17% at 43.3p, with the proposed final dividend up 12% at 16.32p, giving a full year total of 22p (up 10%). The star performance was strong growth in permanent fees in Engineering, up 24% in the year. Matchtech  confirmed that the integration of Networkers is progressing well, and that it remains on track to deliver its synergy targets by 2017. 
In the current financial year we anticipate a further strong  performance, as we forecast adj., fully diluted EPS to rise by a further 11% to 48.1p. We also expect another 10% jump in the dividend (to 24.2p), giving a very attractive 4.8% prospective yield. 
Matchtech remains extremely modestly rated relative to the quoted recruitment sector: its forward P/E (of  just 10.4X) contrasts sharply with valuations for most of the sector of 15 - 22 times. Likewise its yield is 50% higher than virtually all other quoted recruitment companies. At current levels, Matchtech shares are 41% undervalued relative to our increased target price of 705p (up from 680p previously). 
Networkers deal drives H2 NFI up 42%
Published: Aug 06 2015

Matchtech is the UK's leading specialist engineering and professional services recruitment agency, providing contract, temporary and permanent staff. Since the £66.3m acquisition of Networkers International on 2nd April 2015, the Group now derives 28% of Net Fee Income (NFI) overseas.
The early signs for the combined businesses are positive. In today's pre-close trading update for the y/e 31st July 2015, total NFI for the enlarged entity jumped +42% in H2 to £32.5m and +22% to £55.0m for FY15. Moreover, apart from 'revving' up the top line, we estimate that once Networkers is fully integrated, at least £2m pa of annualised cost synergies could be generated by FY17.
However, the real beauty of the deal lies in leveraging Networkers' overseas infrastructure to support MTEC's existing clients in foreign jurisdictions along with cross-selling into adjacent verticals (eg Telecoms). Although difficult to quantify exactly, we believe this sharper organisational structure could deliver sales synergies of >£4m p.a. in due course - none of which has been factored within our existing forecasts. 
Looking forward, in light of the reduced like-for-like NFI rates and a weaker € vs £, we have nudged down our FY16 NFI forecast by 6% to £78.4m (from £83.1m), with adjusted PBTA and diluted EPS coming in at £21.5m and 49.3p respectively.
Indeed, with regards to valuation, our price target remains unchanged at 680p / share, or £1 above current levels.  The stock is not only trading at a significant discount to peers, but also offers an industry leading dividend yield. Further out, we see upside as revenue synergies from the Networkers acquisition begin to materialise.
Going global
Published: Apr 09 2015

Matchtech (MTEC) is the UK's leading specialist engineering and professional services recruitment agency, providing contract, temporary and permanent staff.
After the recent acquisition of Networkers International on 1st April, the Group now derives 28% of Net Fee Income (NFI) overseas and has also become Britain's 5th largest technology agency. MTEC now has a profitable and ready-made global platform from which to roll-out its successful UK model. 
The transaction further provides attractive opportunities into complementary new verticals such as Telecoms, thus offering cross-selling opportunities. And there are substantial cost synergies as well, so it no surprise that the deal is set to be earnings enhancing in the first 12 months of ownership.
Today's interims are robust as NFI increased 1.5% to £22.5m. Engineering again caught the eye, with NFI climbing 5.2% to £14.0m, plus there was a stand-out performance from Infrastructure (+26%). For investors the interim dividend was lifted 5% to 5.68p, and is well covered 3.3x by underlying diluted EPS of 18.7p (+2%). 
Post period contract wins are encouraging including  Southern Water and (announced today) HCL, Zodiac Aerospace plus an extension with BAE Systems.
We now forecast H2'15 underlying NFI (excluding Networkers) to increase 7.2% vs 1.5% in H1 - with FY15 and FY16 diluted EPS upgraded to 41.2p (vs 41.1p) and 49.9p (vs 45.3p) respectively. Adjusting for the higher sharecount, our price target is now 680p/share - over 25% above current levels.
Transformational acquisition of Networkers International
Published: Jan 28 2015

Matchtech is the UK's leading specialist engineering and professional services recruitment agency, providing contract, temporary and permanent staff.
We welcome Matchtech's agreed purchase of Networkers International as it: creates market access for products/services, lets them acquire skills more quickly or at lower cost than could be built in-house, and improve the performance of the target.
In particular, the acquisition provides MTEC with additional scale (NFI up 62.5%) in the UK, along with offering attractive expansion opportunities in new international markets and adjacent verticals such as Telecoms. 
Furthermore the £57.9m price-tag (Est EV of £68.6m including £10.7m of net debt) looks compelling value - equivalent to 2014 EV/EBIT and P/E ratios of 9.7x and 13.5x, falling to 9.1x and 12.7x in 2015. It is too early at this stage to accurately quantify synergies, albeit we think in the medium to long term they could be substantial. 
With regards to valuation, Matchtech stock (at 507p) trades on FY15 EV/EBIT and PER multiples of 12.3x and 9.1x respectively, plus offering an attractive 4.3% dividend yield. We think this 20%+ discount to the recruitment sector is unjustified. 
2014
Matchtech Preliminary Results Webinar, October 2014
Published: Oct 17 2014

Matchtech is the UK's number 1 Engineering recruitment agency and has 30 years' experience in Engineering recruitment. 
Adrian Gunn, CEO, and Tony Dyer, CFO discuss their preliminary results for the half year to 31 July 2014 and answer questions.
Fixing Britain's chronic engineering shortage
Published: Oct 14 2014

Matchtech is the UK's leading specialist engineering and professional services recruitment agency, providing contract, temporary and permanent staff.
It is the UK's number 1 recruiter of 'hard-to-find' engineers, and today posted FY14 adjusted PBT of £12.6m, up +24.8% YoY and +3.8% above our estimates. Net Fee Income (NFI) rose +17.2% (+12.5% LFL) to £45m thanks to improved contract margins (7.5% vs 6.8%) and "very strong demand for skilled engineers".
Going forward, we expect more of the same as FY15 has "started well" and Matchtech is investing "heavily" in fee earners to take advantage of buoyant conditions. We have lifted our adjusted EBITA forecasts to £14.3m (+3.6%) and £15.4m (3.4%) respectively for this year and next.
Our 710p price target is retained, reflecting a slightly higher diluted sharecount. At 570p the stock trades on a forward PER of 13.9x, representing a 25% discount to the peer group average of 18.5x.
Target price rises to 710p after blow-out year
Published: Aug 07 2014

Matchtech Group is the UK's leading specialist engineering and professional services recruitment agency, providing contract, temporary and permanent staff. 
There is a chronic shortage of skilled engineers: Britain needs to urgently find another 87,000 such graduates each year until 2023 to satisfy demand - 70% higher than current levels This is creating ideal conditions for Matchtech and, after another bullish trading statement this morning, we are upgrading our forecasts again for the 5th time in the past year. 
For the year ending July 2014, Matchtech delivered an 18% increase in Net Fee Income (NFI) to £45.2m (+13% LFL), 2.5% above our expectations of £44.1m. This follows encouraging performances from many of its customers, such as Atkins, UK Power Networks, Jaguar Land Rover and GKN. 
We have now raised our FY14 and FY15 adjusted PBT figures by +2.5% to £12.15m (from £11.85m) and £13.2m (from £12.86m) respectively. 
With regards to valuation, the stock trades on a FY14 PER of 15.1x, a PEG ratio of 1.0x and offers a 3.4% dividend yield. The former representing an unwarranted 23% discount to the sector of 19.7x. As a result of the favourable outlook and 6 month roll-forward of our projections, our target price jumps 9.2% from 650p to 710p / share.  
Matchtech Interim results webinar April 2014
Published: Apr 08 2014

Adrian Gunn, Chief Executive, and Tony Dyer, Chief Finance Officer discuss their results for the half year to 31 Jan 2014.  If you missed the live presentation, you can listen to it here: 
Investing for growth
Published: Apr 08 2014

Matchtech Group has 30 years' experience providing niche recruitment services to the engineering, technology, professional staffing and the employability & skills markets.
This morning they have posted another set of better than expected results for the 6 months to January 2014. Net Fee Income (NFI) jumped 19% (or 15.4% LFL) to £22.1m, delivering adjusted EBITA of £6.6m (+53%) - exceeding our estimates of £22.0m and £6.2m respectively. Net debt also improved to close January, 2014 at £8.6m from £10.5m in July, thanks to tight debt collection. The dividend ticked up 5% to 5.41p.
We highlight  sector leading NFI growth from both the Engineering (+15.5% LFL to £13.3m) and Professional Services (+15.2% LFL to £8.8m) divisions. NFI conversion climbed 3.9% to 29.7%, assisted by favourable customer mix and operational gearing.Cash conversion was strong at 115%, generating operational cash inflow of £7.1m, with net borrowing falling to a comfortable 0.65x EBITDA.
Our FY14 PBTA figures have been increased by £0.2m to £11.85m. Moreover, we believe the Board's strategy of accelerating growth will further bear fruit in FY15 and beyond, and have lifted our price target from 580p to 650p/share.
Full steam ahead
Published: Feb 05 2014

Matchtech's Pre-close Trading Update confirms that it had a strong H1 across the board: H1 Net Fee Income (from continuing operations) increased 15%  to £21.2m. Contract NFI of £14.9m was up 13%, and demand for permanent staff also improved, with Permanent Fees of £6.3m, up 19% compared with H1 last year.
Matchtech stated that it expects its results for the full year to be slightly ahead of current expectations. As a result we have upgraded our FY14 Net Fee Income, PBT and adjusted EPS forecasts to £44.1m (+5.5%), £11.65m (+4.5%) and 36.8p (+4.5%) respectively.
Our target price moves up from 556p per share to 580p. At the current 550p Matchtech is trading on a forward PER of 15x (a 25% discount to its peers), and paying a 3.5% dividend yield.
2013
Strong Q1,LFL Net Fee Income up 13%
Published: Nov 14 2013

Matchtech Group has over 29 years' experience providing niche recruitment services to the engineering, technology, professional staffing and the employability & skills markets.
Today they released an encouraging Q1 trading statement, saying that the business had 'continued to perform in line with expectations'.Like-for-like Q1 NFI was up 13% to £11.1m; split £8.0m contract (+14%) and £3.1m permanent (+11%); driven by strong demand from engineering.
They are only 3 months into the new financial year, so we have prudently chosen to hold the forecasts fair value targets - but reiterate our positive bias at today's levels due to the company's numerous growth opportunities.
Dividend up 15% after excellent results
Published: Oct 15 2013

Matchtech Group has over 29 years' experience providing niche recruitment services to the engineering, technology, professional staffing and the employability & skills markets.
Robust demand for contractors across all engineering sectors together with a H2 pickup in Professional Services, led to outstanding FY13 results. Net Fee Income was up 6% to £38.4m, PBT at £10.3m climbed 29% and adjusted EPS soared 37% to 33.4p.
There was also a 15% hike in the dividend to 18p, above expectations, funded by strong operating cash conversion of 108%. We think there is scope to further lift the 3.6% dividend yield given the comfortable 1.9x earnings cover and modest gearing. 
Looking forward, our FY14 adjusted PBT and EPS has been lifted by c.7% each to £11.1m and 35.2p respectively, with the target price leaping 25% from 442p to 556p/share. Further stock appreciation can come through self-help measures, improving NFI conversion, operational leverage and earnings accretive acquisitions.
Matchtech Investor Presentation at Equity Development forum 25th September 2013
Published: Sep 24 2013

Adrian Gunn and Tony Dyer give investors and overview on the company prospects.
Matchtech: Preparing for Major Growth Phase
Published: Sep 20 2013

Matchtech Group is the UK's number 1 supplier of engineering staff (85% of EBIT)  serving blue chip clients like Jaguar Land Rover , BAe Systems (via Xchanging), Transport for London and Atkins. It operates in the 'sweet spot' of the recruitment industry, placing 'hard-to-find' technical personnel.

This morning Matchtech has announced a placing of 1,050,000 shares at 405 p, raising £4.3m. The proceeds of the Placing will be used to repay the drawdown on the Group's existing lending facility which was used to fund the acquisition of Application Services Limited, trading as Provanis, announced on 6 September 2013.

Matchtech has also announced the very significant appointment of Brian Wilkinson as Executive Chairman with effect from 2 December 2013.  Brian has worked in the recruitment industry for over 30 years, most recently as an Executive Board member of Randstad Holdings NV, the world's 2nd largest recruitment company, and  brings to the Group a track record of successful international strategic development and extensive experience of professional services recruitment. 

'Tuck-in' acquisition of niche IT recruiter
Published: Sep 05 2013

Today Matchtech announced that it had acquired Application Services Ltd (trading as Provanis) for £4m in cash for the shares along with assumed debt, subject to standard closing conditions.
We believe the transaction is an ideal fit with their existing Connectus (technology) division. Additionally it expands the group's activities abroad, and provides valuable expertise in the niche Enterprise Resource Planning (ERP) recruitment sector.
The deal is anticipated to be earnings accretive, as we have upgraded 2014 PBT by 3.4% to £10.4m, and nudged up our target price from 443p to 448p/share. Despite strong recent performance Matchtech shares are still not expensive, on an undemanding forward PER of 12.4x, roughly a 30% discount to its peers.
Riding the boom in professional contractors
Published: Aug 08 2013

One proven way to make money on the stock market is to invest in quality businesses that trade at attractive valuations and benefit from secular bull trends. Matchtech fits the bill, and in our view is still one of the cheapest and fastest growing plays in the recruitment sector.
Going forward we expect the fundamentals to remain positive, supported by acute shortages of skilled contractors within the automotive, aerospace, oil/gas, computing and infrastructure industries. 
Moreover given the favourable outlook, market share gains and positive momentum, there is a decent chance that we will be able to upgrade our July 2014 PBT forecast of £10.0m at the prelims on 15th October.
Britain's 'go-to' provider for skilled engineers
Published: Jul 08 2013

Matchtech Group is the UK's number 1 supplier of engineering staff (85% of EBIT)  serving blue chip clients like Jaguar Land Rover , BAe Systems (via Xchanging), Transport for London and Atkins. It operates in the 'sweet spot' of the recruitment industry, placing 'hard-to-find' technical personnel.
Matchtech has demonstrated its resilience across the economic cycle and the last set of interims was impressive too. For the 6 months to January 2013, Net Fee Income jumped 8.0% like for like (versus a sector average of 1.6%). NFI conversion into EBIT came in at 25.9% (vs sector 16.1%), while the dividend pays out a chunky 4.8% yield.
Looking ahead we are forecasting July 2013 turnover and adjusted EPS of £404.8m and 30.5p respectively, rising to £461.2m and 41.4p by 2016. Based on a DCF analysis, we've set a target price of 423p/share, equivalent to a 2014 P/E ratio of 13, and well above the current 334p mark.