The shares appear oversold

Gattaca is the UK's largest specialist engineering/tech recruitment agency. Its shares have fallen >70% (vs c. -25% sector) from their 52 week high of 285p - principally due to January’s profit warning. There is work to be done, but even so we believe the scale of the sell-off looks totally disproportionate to the issues involved (Re temporary disruption from a major IT system implementation, staff turnover/culture, etc).

Following the recent appointment of Matthew Wragg as CEO - a highly capable & experienced industry professional with ‘sales’ running through his veins - the early signs of a successful turnaround are tentatively taking shape, with productivity levels inching up anecdotally MoM since January. Furthermore the company is “seeing encouraging trends across many of its sectors”.

We have pencilled in FY23 PBT of £2.5m on NFI of £49.1m with a 145p/share fair value, albeit these estimates are prudent, and we would ultimately hope to upgrade as key milestones are met. Similarly, we assume the FY22 dividend will be temporarily suspended, leaving net funds (pre IFRS16) of £5.0m as at Jul’22 (excluding £10.4m of non-recourse finance).