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.
