Last month, 3 of the largest recruitment firms (Michael Page, Hays & Robert Walters) all warned that their results were being impacted by the ongoing global uncertainty, especially in the UK (re Brexit).
Likewise this morning, despite reporting positive FY19 numbers, Gattaca said that it too had experienced some 'softening' in Q1 20. Clearly this is frustrating, yet equally it's not the end of the world either, especially since the Board has master-minded a 'back-to-basics' recovery over the past 18 months. Closing unprofitable units, re-energising the business, focusing on faster expanding regions/disciplines and refreshing management.
Indeed FY19 adjusted PBT climbed 4.6% to £11.4m (vs £10.9m LY), whilst net debt fell 39% to £24.8m (vs £40.9m LY), or 1.7x EBITDA. Plus, we believe Gattaca now has the right foundations and geographical footprint from which to achieve its strategic goals.
That said, new business development and sales resource is being selectively added to further accelerate top line growth. Meaning that, alongside the more challenging conditions, we have prudently cut our FY20 LFL NFI, PBT and EBIT/NFI estimates to 0.3%, £10.0m (-15%) and 17.0% respectively. In turn, reducing the valuation from 200p to 160p/share.
Nonetheless, the long term fundamentals (re STEM verticals) remain sound, and we believe the stock could potentially double over the next 3 years. Assuming of course there is no further deterioration in the macro environment.
Finally, management will continue to control costs/cash tightly in light of the darker economic clouds, and we think will seek further savings with the view to self-fund some of the planned growth.
