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The Board have sensibly withdrawn FY20 guidance.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.
