Gattaca Share Discussion Threads

[che7win] 21/11/2016 16:30

Bought a few.

[kmann] 17/11/2016 09:57

ExDiv. Offering longterm value imo

[spectoacc] 16/11/2016 21:37

@Sky - welcome aboard! It's one of about 5 stocks I hold, mainly AIM-listed IHT punts for LTBH, but never in large size. Otherwise try to be all Investment Trust (or equivalent, eg REITS or pseudo-REITS).

GATC can be very illiquid and swing around a bit, but as a (theoretical) long term holder can't say it bothers me. What did annoy me is the name change from Matchtech - smacked of money needlessly spent. And recruiters invariably suffer when the next downturn comes along. But I think both UK & US move towards infrastructure spending is going to supply a decent tailwind.

[grahamburn] 16/11/2016 19:07

May well do tomorrow with that 17p dividend in the bag.

[spectoacc] 14/11/2016 09:41

Had a reasonable write-up in the Reports section in the IC on Friday - is what's stimulated today's buying I reckon. Can also imagine them tipping it at some point, with the whole infrastructure angle.

[kmann] 10/11/2016 09:25

See what the autum statement has to say. Look out for anything infrastructure related, as hinted by Gatc, they should benifit strongly imo.

Also relevant "Furthermore, extra headcount is presently being deployed overseas where stronger growth is being achieved. In particular, we reckon a sea-change could be coming in the US, irrespective of which candidate wins the Presidential Election next Tuesday, since much of the country’s road, bridge, rail and transport networks are crumbling, with estimates from the American Society of Civil Engineers suggesting $3.32trillion of infrastructure spend is required between 2016 and 2025"

Looks like a decade of infrastructure for UK, US, and India. Should keep Gattaca busy!

[spectoacc] 09/11/2016 13:20

@kMann - if you think funds are buying, someone has to be selling, natch?

[kmann] 09/11/2016 13:03

SpectoAcc, why would funds sell a stable, high yield stock? Have you sold/shoerted? If so why?

[spectoacc] 08/11/2016 15:16

Or selling? ;)

[kmann] 08/11/2016 15:12

Large volume past few days. Funds buying?

[jombaston] 04/11/2016 16:58

PS is correct about NFI being the true top line.

I'm surprised he hasn't mentioned the cash flow statement. This is the real clincher...
DYOR and you will see that they have generated so much cash that they have afforded to pay the fantastic dividend and reduce debt.
Capex requirements are low relative to cash flow and finance costs will fall so even if NFI is down 3% this financial year the company will still have ample cash flow for the dividend and debt repayment.

[spectoacc] 04/11/2016 16:22

Thanks @Masurenguy, a good read.

[masurenguy] 04/11/2016 16:17

Paul Scott thinks GATC is good value at the current shareprice.

Gattaca is the new name for MatchTech and Networkers - brands which are still used, but under the new corporate name. Equity Development ran an excellent webinar yesterday, which I participated in. Management said they had "completely repositioned" the group as a specialist in engineering & technology staffing. About three quarters of revenues come from providing contractors, typically on about a one year contract. The business is also expanding internationally, and they see this rising from about 30% of revenues, to c.50%, over time.

Cost synergies of about £3m have been achieved from combining MatchTech and Networkers, although this has mainly been reinvested in growth. Profitability - was roughly flat against prior year, on an underlying basis.

People often say that staffing companies are low margin, but that's because most revenue is "pass through" - i.e. the contractors' salaries. Therefore reported underlying turnover of £616.9m sounds a lot, but Net Fee Income is much lower at £72.4m underlying. This latter figure is what I personally see as the real revenues, excluding pass through salaries. Underlying operating profit was £21.4m, so actually quite a good profit margin if you compare it with NFI. The prior year comparison number is £21.2m.

In terms of EPS, I think the company has caused some confusion by only highlighting basic EPS, of 31.0p (diluted). Someone asked about this in the webinar yesterday, wondering if the share price fell because the company failed to highlight adjusted EPS, which was 44.3p. That makes quite a big difference to valuation of course - the PER is 9.5 using basic EPS, but drops to only 6.6 if you use the adjusted EPS - a big difference. I'm happy with these adjustments, so to my mind this stock looks dirt cheap, on a PER of only 6.6.

Of course, a PER is only cheap if earnings are sustainable. What the stock market is probably doing, is discounting a fall in future profitability. I think this is due to heightened worries about a possible recession in 2017 - not an unreasonable position, since I think the economic outlook is very uncertain at the moment.

Outlook - there are various outlook comments scattered throughout the results narrative. I've collated them below;
"Since entering the new financial year we have a seen a slowdown in trading in the UK with Group NFI in 2017 Q1 forecast to be down 3% on 2016 Q1 (Contract down 2%; Permanent down 7%). We are continuing to Invest in our overseas operations which continue to enjoy growth and which will to some extent mitigate the uncertainty around UK economy in the medium term. Full year effects of Networkers acquisition to come through in FY17, with first concrete sales synergies now being realised. However, the outcome of the vote continues to make the economic outlook uncertain, yet it is still too early to say what its near-term impact will be for Gattaca. Whilst the amount of business we conduct in Europe is not significant, the same cannot be said for many of our clients and any uncertainty can have a knock-on effect in the investment decisions our clients make.

In the longer term, our strength within the Engineering and Technology sectors transcends international boundaries, and as the trend towards globalisation continues, we are in a good position to respond to any EU exit settlement eventually reached. The medium term outlook for Gattaca is positive, despite some weakening in demand in the UK. The Board will continue to assess UK trading over the coming months as clearly there is uncertainty over how the EU referendum result will affect UK investment. We are, however, well placed to increase our market share in the UK, while pursing strong international growth through our regional hubs."

The overall tone of the webinar was completely different to the above, I thought. Talking about the business, management sounded far more upbeat than the RNS indicates. So some mixed messages, which probably explains why some shareholders exited yesterday, pushing down the share price. Obviously the slowdown in Q1, and cautious comments about Brexit, haven't helped sentiment. In the webinar though, management sounded enthusiastic about the potential for improving UK business due to Heathrow expansion, Hinkley Point, and other big infrastructure projects - which will need large numbers of engineers, from the design stage onwards.

Divdends - brokers seemed to be assuming a cut in divis, but the full year divi has actually been increased by 5% to 23p, with management saying this reflects their confidence in the future. Again, that doesn't really tally with the cautious outlook comments above. So I'm confused! The dividend yield is excellent, at 7.8%. Therefore if you think that's sustainable, this could be an attractive time to buy. The divi cover is quite healthy too, at almost 2 times (using adjusted EPS). Interestingly, management said on the webinar that they didn't cut the divis in the last recession.

Balance sheet - one of the better ones I've seen, amongst small cap staffing companies. NAV is £81.6m, then I always delete intangibles, making NTAV £33.2m. The current ratio is very healthy at 1.84, so a strong working capital position - basically a massive debtor book, partly funded by bank debt. Note that net debt of £25.0m is down £8.6m on a year earlier, and that Gattaca has tons of headroom within its total £105m of bank facilities - recently extended to Oct 2020. The £1.1m P&L finance charge is consistent with the reported net debt too. Note that forex gains boosted profit by £1.0m. Overall then, I don't have any balance sheet concerns - this is a well-financed company that could weather an economic downturn.

Tax rate - is high, due to overseas operations, and not being able to reclaim some overseas tax. This is a pity, but of course is accounted for within EPS (which is post-tax profits).

My opinion - it's not often you find a sustainable dividend yield that is higher than the PER, but that is the case here. It has a strong balance sheet too. Therefore I very much like the value characteristics of this share. The trouble is, the market isn't interested in value shares at the moment, it's all about growth. Having said that, I think the valuation here is so compelling, that I'm very likely to increase my existing long position here at some point - probably after the US elections are out of the way, so it's going back onto my buying list.

[hannahh] 04/11/2016 14:45

If you would like to view yesterday's webinar please go to:

Kind regards,
The Equity Development team

[kmann] 04/11/2016 13:53

I think the extended fall had more to do with a shareprofits hatchette job (for value creation purposes). A Solid company delivering strong earnings a healthy dividend year after year. Oversold imo. But will be buying on any weakness or director buys.

[spectoacc] 04/11/2016 13:05

Bought more here. p/e less than 10, yield 7.5%, find them hard to resist. But no question a single bad t/s and they'd halve, so can't blame anyone for wanting to sell out instead.

[jimmywilson612] 03/11/2016 11:41

The problem is the big drop in permanent recruitment (which is a lot more profitable than contractors).

Still a holder here but tempted to take the loss and move on.

[imranawan] 03/11/2016 10:42

I thought the results were okay and in-line as they had flagged previously. The outlook statement is a little wobbly.

I don't understand why they didn't present the adjusted EPS in a similar way to last year, as adj EPS was 44p.

[davebowler] 03/11/2016 09:56

Equity Development;

Gattaca is the UK's number 1 specialist engineering (60% group NFI) and number 5 technology recruitment agency, providing contract, temporary and permanent staff. It derives 32% of NFI overseas (albeit mostly still invoiced from UK), and 74% from placing contractors (circa 9,000 on assignment), with 26% coming from permanents. The global engineering and technology recruitment markets are valued at circa $26bn and $57bn respectively.

In terms of this morning’s “solid” FY16 numbers, adjusted NFI jumped 38% to £72.4m primarily thanks to the Networkers acquisition. Stripping out M&A, LFL growth was flat at 0% (see below), with a 6% increase in Engineering (Infrastructure up 18%, with Oil & Gas and Maritime down) being offset by a similar decline in Technology. The latter seeing a 9% rise in Telecoms reversed by a 17% fall in IT.

FY16 adjusted PBT and EPS came in at £20.5m (+26%) and 44.3p (+1%) respectively, which was in line with our forecasts of £20.4m and 43.7p. The dividend was raised 5% to 23.0p, equivalent to a 6.8% historic yield.

Post BREXIT, Bank of America Merrill Lynch have reported that institutional cash positions currently sit at 15 year highs: a sure-fire sign that sentiment is too bearish. Gattaca appears overly impacted by this ‘wall of worry’ trading on a prospective PER of 8.5x and offering a thumping 6.9% dividend yield (1.7x covered).

FY17 has started more slowly than anticipated, with total NFI subsequently dipping to -3% in Q1’17 (Est split -5% UK and +2% overseas), due to an element of caution in client hiring plans. But we believe conditions will eventually pick-up as literally thousands of engineers will be needed to support the new £17.6bn runway at Heathrow, the £18bn nuclear power station at Hinkley Point, and the £42bn HS2 rail link between Birmingham and London.

Furthermore, extra headcount is presently being deployed overseas where stronger growth is being achieved. In particular, we reckon a sea-change could be coming in the US, irrespective of which candidate wins the Presidential Election next Tuesday, since much of the country’s road, bridge, rail and transport networks are crumbling, with estimates from the American Society of Civil Engineers suggesting $3.32trillion of infrastructure spend is required between 2016 and 2025.

Going forward, in light of the weaker Q1’17 our FY17 adjusted EBIT has been trimmed by 4% to £19.7m (from £20.5m), with the share price fair value being similarly eased from 460p to 450p, still materially above current levels. The CEO also stated ‘ great confidence in the Company’s future prospect

[salpara111] 03/11/2016 09:26

I just put these on my watch list a week ago waiting for these results.
Personally I thought they were OK and not meriting a double digit drop.
If they weaken any further I will most likely take a stake.

[spectoacc] 03/11/2016 08:41

Market clearly not that keen. Debt fallen (from 33.6m to 25m), EPS up 5% (31p diluted), divi up 5% (to 23p for the year). Doesn't look expensive.

[gostevie63] 03/11/2016 08:09

A new research note from Equity Development can be found here:



Gostevie

[quepassa] 03/11/2016 07:45

But isn't the Outlook really iffy?
Europe sounds quite worrying?

ALL IMO. DYOR.
QP