The jobs market is polarizing, as the world continues to transition towards those disciplines enjoying secular growth, such as STEM, cyber-security, Big Data & Artificial Intelligence.
The good news is that this 'paradigm shift' plays perfectly into the hands of Gattaca. Indeed this morning the firm said that its leading UK engineering division (70% NFI) had increased FY19 NFI by 5% LFL (7% H2 vs 4% H1, +1% LY & -3% FY17) to £50.0m (£47.5m LY), thanks to robust demand for its Solutions, Engineering Technology and Infrastructure services, especially permanent placements. Implying too that it is not only winning share, but also poised to regain its top tier status.
Sure there is still work to be done - not least in International and Technology, which saw NFI contract in H2 19. Yet despite these temporary headwinds, the group as a whole handily beat our FY19 adjusted PBT (prior £10.9m) and net debt (before £38.5m) expectations, coming in at c. £11.3m (ED est.) and £25.0m respectively. Leading us to further upgrade the valuation from 185p to 200p/share.
What's more we could see the stock's discount vs peers close relatively quickly. Maybe simply as the macro fog (hopefully) lifts over the next 12 months - triggering a re-rating towards peer averages of 7.5x EV/EBIT, equivalent to a theoretical 230p/share.
Or perhaps via some form of corporate transaction. Here both Morson (UK STEM recruiter) and HRNetGroup (Singaporean staffer) have recently increased their stakes to 15.1% and 5.5% respectively. Meaning that, given the potential significant synergies of combining with GATC, their presence could both put a floor under the stock, and/or even result ultimately in a hefty takeover premium.
