Matchtech is the UK's leading specialist engineering and professional services recruitment agency, providing contract, temporary and permanent staff. After the £66.8m acquisition of Networkers International on 2nd April 2015, the group now derives 30% of NFI overseas, and has also become Britain's 5th largest technology agency.
On the fears of global economic slowdown, we think that as long as the current volatility subsides over the next 3-4 months, then with the exception of cuts in discretionary expenditure (eg advertising & travel budgets), there should be minimal long term damage to the 'real economy'. A view consistent with this morning's upbeat trading statement from specialist recruiter Matchtech, who we think are a useful barometer of corporate hiring intentions, and hence of future economic activity.
Looking forward, roll-out of services to overseas locations looks promising, with the CEO saying today 'I remain confident that we will convert these exciting opportunities into significant growth over the next few years.'
H1'16 trading was also stated to be "in line with expectations" (FY16 consensus adjusted PBTA of £21.3m) with H1'16 NFI up 59% to £35.7m (including April's £66.8m acquisition of Networkers). On a LFL basis, NFI was broadly flat at -1% YoY, thanks to strong performances from Engineering (+7%), Telecoms (8%, 4G/3G) and permanent placements (+4%), offset by weakness by IT (-20%) and lower contractor fees (-3%).
H1'16 NFI was up 4% sequentially on H2'15, which - when added to the 5% increase in fee earner headcount (515) since July, and further progress on synergies - bodes well for the future. Indeed almost £2m (up from £1.3m in October) of annualised savings have already been identified from the Networkers deal; with more to come from combining back office functions, and leveraging sales initiatives across different verticals (eg IT and engineering) and geographies (eg Asia & North America).
In terms of the numbers, we have tweaked our FY16 adjusted PBTA and EPS forecasts down to £21.3m (-1.1%) and 45.6p (-5.2%, reflecting a higher tax rate of 30% vs 27%) respectively. Recruitment sector multiples have dropped from October levels - with our price target duly being rebased from 705p to 604p/share, equivalent to 10x CY EV/EBITA and 13.2x PER.
At 505p, we still consider the stock good value, trading at a 10%-20% discount to peers, and offering a chunky 4.8% dividend yield that is 1.9x covered.
