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.’
