The recruitment sector is at the sharp end of the economy. Indeed it’s one of the best gauges of GDP – providing a window into future business investment, right at the coalface. The difficulty however for investors, is deciding which staffers will be the winners in today’s more challenging environment. To us, the key differentiator is vertical market focus. Concentrating on those disciplines that are enjoying secular growth, such as STEM, cyber-security, Big Data & Artificial Intelligence. As opposed to those being buffeted by macro headwinds, namely manufacturing, physical retail, capital goods & London’s financial district.
One stock that fits the bill is Gattaca, underpinned by its leading UK engineering operation (70% NFI). Here FY19 NFI climbed 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 increasing share, but also poised to regain its top tier status.
Better still, this standout performance helped the group as a whole handily beat our FY19 adjusted PBT (prior £10.9m) and net debt (B4 £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.
That said, there is still plenty to be done. For instance, despite advancing 3% in FY19 to £9.6m (vs £9.4m LY), International temporarily hit a ‘speed-bump’ in H2, experiencing an 8% LFL NFI decline (£4.6m vs £5.0m LY & +14% H1).