Profits are booming at this cash-rich recruiter

  • Net fee income (NFI) up 5 per cent to GBP22.7mn
  • First-half underlying pre-tax profit of GBP0.9mn from GBP0.3mn loss in 2021
  • Net cash of GBP20.9mn backs up 80 per cent of market capitalisation

Gattaca (GATC:81p), the specialist science, technology, engineering and mathematics (Stem) recruitment business, flagged up its ongoing recovery in a pre-close trading update last month (‘Four bargain shares where good news is rewarding investors, 23 February 2023). The move into profit was driven by stand-out performances from energy (operating profit doubled to GBP1mn on 9.5 per cent higher revenue of GBP21mn), defence (profit of GBP1.1mn from break-even on 20 per cent higher revenue of GBP38.9mn) and infrastructure (profit of GBP0.3mn reversed a loss of GBP0.7mn on 4 per cent higher revenue of GBP74.7mn). The three segments accounted for 69 per cent of group revenue in the first half and are benefiting from demand drivers that are likely to persist.

For instance, resource demand in the defence sector increased 15 per cent in the first half, and the UK government has just committed to higher defence spending in the recent Budget. Pressures on global energy production and the transition to renewables are playing to Gattaca’s strength, too, as is exposure to major infrastructure projects (HS2, UK water market and highways). Strength from these three sectors more than offset weakness in TMT and the restructured international operations.

The improved financial performance also benefited from higher yields (average permanent and contracts fees up 6 and 9 per cent, respectively), improved productivity (net fee income per sales employee was 20 per cent higher), and reductions in third-party costs, property overheads and general cost savings. Importantly, attrition rates continue to improve under the new management team, a reflection of the change in culture. They have improved staff engagement, localised accountability and streamlined decision-making by cutting out layers of management across the sales business, which now employs 343 employees, or 69 per cent of the headcount.

Clear direction of travel

There is more work to be done, and the general economic outlook has led to some clients lengthening lead times.

However, the group is winning contracts including a major one with easyJet, and direction of travel underpins Equity Development’s forecasts that point to a sevenfold rise in annual pre-tax profit to GBP1.8mn on NFI of GBP46.5mn. Moreover, with the benefit of a slimmed-down cost base and restructuring overseas operations, the group’s operational leverage could be seen to full effect in the 2023-24 financial year when analysts expect a surge in pre-tax profit to GBP4.25mn on 9 per cent higher NFI of GBP50.6mn. A rock-solid cash-rich balance sheet – net cash of GBP20.9mn (65p) backs up 80 per cent of Gattaca’s market capitalisation of GBP25.5mn – supports the reintroduction of a payout, too.

Analysts are forecasting dividends of 1.4p (2023) and 3.3p (2024) paid from earnings per share (EPS) of 4.3p (2023) and 9.7p (2024). On this basis, the shares are rated on forward cash-adjusted price/earnings ratios of 3.7 (2023) and 1.6 (2024), and offer prospective dividend yields of 1.7 per cent and 4.1 per cent, respectively. I suggested buying the shares, at 74p, in my 2023 Bargain Share Portfolio, and see scope for material upside.

Buy. ? Simon Thompson’s latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order.

The books are being sold through no other source and are priced at GBP16.95 each plus postage and packaging of GBP3.95 [UK].

Promotion: Subject to availability, the books can be purchased for the promotional price of GBP25 plus GBP5.75 postage and packaging.

Tags:

esprit listed on couponmatrix.ukfarmhouse-inns listed on couponmatrix.ukgrattan listed on couponmatrix.ukinterflora listed on couponmatrix.uksaw-experience listed on couponmatrix.uktp-toys listed on couponmatrix.uk
esprit listed on couponmatrix.ukHaving made a name for itself making beautiful ranges of loungewear and active clothing, you can now pick up any type of outfit from Esprit whether you’re dressing up for the party or chilling out for the weekend. Use an Esprit voucher code from us as you make your next order and you’ll be amazed at the savings you make across the ranges for both men and women, as well as kids!
farmhouse-inns listed on couponmatrix.ukFeeling hungry? Head to Farmhouse Inns for tasty pub grub the whole family will love! With a delicious carvery and menus to suit any appetite, it’s the perfect pick for kids and adults alike. Think classic pies and mash, seasonal salads and sumptuous roasts - all washed down with a tasty tipple or two! Make the most of a Farmhouse Inns voucher to save on quality food and service with a smile.
grattan listed on couponmatrix.ukThe UK’s original shopping catalogue offers so much more than clothes these days, but it’s still best-known for cutting-edge design that lets you enjoy the next big fashion trends before everyone else starts selling them. Shop with them using the Grattan discount code and their affordable, beautifully-made outfits stop just being desirable - and become irresistible, supercharging your wardrobe at a stroke with jeans, tops, dresses, shoes and so much more all available at the click of a button.
interflora listed on couponmatrix.ukNeed flowers or a gift in a hurry? Interflora flowers are the answer with their speedy UK and International flower delivery services. Whether you've a happy occasion on the cards or a moment to commemorate, you can find the bouquet that you need to make every occasion special. Pick up an Interflora discount code from Groupon and browse the bright selection of flowers in all seasons as well as plants and other gifts too for less. From birthday bouquets for a loved one, to Interflora funeral flowers and gifts to show you care, you don't have to say it with words with Interflora by your side.
saw-experience listed on couponmatrix.ukInspired by the grisly film francise, SAW: Escape Experience is London’s most spine-chilling escape room yet! Situated in the heart of London on America Square, Jigsaw invites you to participate in his latest games, where you’ll pit your wits against puzzles and moral dilemmas to win your key to freedom. This one isn’t for the faint of heart, so expect jump-scares, flashing lights and theatricality at every turn. No walk-ins are allowed, so secure your tickets with a SAW Experience London promo code from Groupon. Whether you’re playing with friends, colleagues or strangers, the SAW Experience is guaranteed to get your heart racing and test your moral fibre.
tp-toys listed on couponmatrix.ukTP Toys has been designing and creating children's play equipment for over 50 years, making the brand one of the most trusted and valued brands on the internet. From climbing frames and playhouses to swing sets and trampolines, there's a outdoor play set perfectly suited for both your children and your garden. Shop for less with a TP Toys discount code and get the kids active without breaking the bank. Ditch the TV once and for all - with TP Toys, the only limit is your imagination!