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 (see below), 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. Further working capital unwind is anticipated in H2 (Re exit from Telecoms Infrastructure), albeit neutralised by higher capex on IT systems (CRM Bullhorn).
Even the perennial ‘thorn’, UK Technology, showed improvement. Sure (as flagged at the Nov prelims) NFI dropped -10% (vs -3% LY) to £6.6m on the back of restructuring in Q1’19 - but importantly profits at both Telecoms & IT climbed vs FY18. Highlighting that the firm’s ‘self-help medicine’ is working.
Likewise, 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).