Gattaca is the UK's #1 specialist engineering (60% NFI) and #6 technology (21%) recruitment agency, providing contract, temporary and permanent staff.
Given all the Brexit related rock-throwing and in-fighting at Westminster, it is a breath of fresh air to hear some positive corporate news. This morning STEM recruitment specialist Gattaca said that it’s ‘back to basics’ turnaround plan is right on track. Indeed, the business delivered its highest level of LFL NFI growth since 2014, coming in at £36.6m (+2%) for H1’19 vs £36.0m LY.
The standout performer was ‘International’, up +15% (vs 5% FY18) to £5.1m driven by China and the Americas. Ably supported by +3% growth (1% FY18) at UK Engineering (£24.9m), reflecting “strong” demand within Infrastructure (incl RSL), Maritime and Engineering Technology – partly offset by Automotive, where diesel sales declined following the introduction of tighter emission standards alongside softer consumer confidence.
Better still, net debt closed Jan’19 down to £29m from £40.9m in Jul’18 and £36.2m 12 months’ ago. Some of this was simply timing/seasonal differences, yet nonetheless we are encouraged by the deleveraging, and have lowered our FY19 target to £38.5m (from £41m) – representing a net debt/EBITDA ratio of 2.7x.
We understand there has been another significant headcount reduction in H1’19 (810 July’18 vs 870 Jan’18), underpinning our estimates for a modest rise in FY19 EBIT/NFI conversion to 18.2% (vs 18.1% LY).
Looking ahead, we have held our FY19 numbers for NFI, PBT and adjusted EPS (diluted) at £72.0m, £10.9m and 23.2p respectively – but nudged up the valuation to 185p/share in light of the robust cash generation. What’s more, we think the stock at 113p is materially undervalued - trading on FY19 EV/EBIT and PER multiples of only 5.9x and 4.9x vs 7.7x and 9.1x for the wider staffing sector.
