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
