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
