Despite being forward looking, it never ceases to amaze me how often the market mis-prices stocks, especially in smallcaps where positive developments haven’t yet been fully reflected in the numbers.
Take Matchtech, Britain’s leading supplier of white collar engineering professionals. It acquired Networkers International for £66.8m in a “transformational” acquisition on 2nd April 2015. Fast forward 6 months and the deal is bedding down nicely, with the Board saying this morning that there is a “huge opportunity” in “all our international locations” (30% of revenues), with the greatest benefits envisaged in the Middle East, North America and South-East Asia.
Here, strong top line growth is set to be achieved by replicating the company’s UK success overseas, co-ordinated x-selling initiatives, following large clients abroad and winning a greater share of customers’ wallets by providing more specialist staff as IT, telecommunication and engineering technologies converge across industries. The first revenue synergies are expected later this year, with “early progress, such as on joint bids” being ‘’highly encouraging’’.
Granted organic NFI (Net Fee Income) growth of late has been relatively modest versus listed rivals (see below). However, we think this is only temporary with FY15’s +0.9% figure being largely a function of the 7% decline in Professional Services and the closure of Barclay Meade’s London office – both areas which have recently been addressed.
In our view a better indicator of future performance is the company’s 5 year track record, where LFL NFI expanded on average by 10.7% pa between 2011-15 (see next table). What’s more, as an early sign that the renewed focus on sales is working, Matchtech secured an exclusive contract with the Royal Navy after the period close, to source maritime defence related engineers from a range of different industries.