The forthcoming EU referendum and fears over a possible ‘BREXIT’ appear to be causing ‘sleepless nights’ for many foreign exchange dealers, UK exporters and overseas investment dependent industries, such as London property. But what about domestic recruitment? Well, heading into the June 23rd vote, we think there may be a temporary dip in hiring, but overall this should have minimal lasting impact, particularly within Matchtech’s core verticals of engineering and telecoms, where demand remains healthy.
In fact March’s Spring Budget bought welcome news in terms of HS2/3, Cross Rail 2 and other major infrastructure projects. Also Dyson said that it would be creating another 570 jobs in Malmesbury, after receiving a £16m government grant to develop next generation batteries; whilst Rolls Royce chipped in with 350 new positions at its Derby factory to ramp-up production of Trent XWB aircraft engines.
STEM graduates too have reason for optimism, with CV-Library (an independent job website) predicting last month that the top 3 disciplines this year for recruiters would be Civil, Mechanical and Structural engineering.
To us this upbeat outlook is inconsistent with Matchtech’s lowly valuation - at 435p the shares trade on forward EV/EBITA and PER multiples of 7.6x and 9.5x respectively, along with paying a 5.6% dividend yield. What’s more, only a couple of months ago the company released a positive pre-close statement, reassuring investors that H1’16 results would be “in line with expectations” and "demand for skilled UK engineers remains robust”.
So we expect NFI (Net Fee Income) to climb 59% to £35.7m – which, excluding the £66.8m acquisition of Networkers in April 2015, translates into broadly flat like-for-like comparisons, thanks to strong performances from Engineering (+7%), Telecoms (8%, 4G/3G) and permanent placements (+4%), offset by weakness in IT (-20%) and lower contractor fees (-3%).
In terms of the full year outlook, we retain our adjusted FY16 PBTA and EPS forecasts of £21.3m and 45.6p respectively, and reiterate the 604p/share price target – equivalent to 39% upside from current levels. At the interims on 14th April, we anticipate continued solid progress with regards to the integration of Networkers, associated cost/sales synergies and H2 trading.