Recruitment firms were probably not where you would want to be during a global pandemic. Worldwide, the last thing on many CEO’s minds was recruiting more staff.
Investors, however, seem to be anticipating an uptick in recruitment if the Gattaca (LSE:GATC) share price is anything to go by. Trading at around 150p a month ago, Gattaca stock has taken off. We have seen some selling this morning (Monday), but the recruiter’s stock has been in demand since 25 May and could well be worth a closer look.
Gattaca: specialist recruiter could benefit as economy opens up
Gattaca is a specialist recruiter rather than a broad-brush pan-sectoral player. It is particularly strong in the engineering and technology areas. It owns a number of sub-brands in the hiring space, like Networkers, its technology recruitment business. Gattaca is not a UK-focused play either, with operations in the US, Canada, South Africa and Spain.Volume in Gattaca shares has been consistently strong over the last few weeks, with many investors buying in. Gattaca shares are in fact up almost 500% over the last 12 months. The market cap is relatively small – £87m – versus a revenue base of £447m according to Investing.com.
It’s tough to look back at Gattaca’s financial performance in the last 18 months and make a coherent assessment, because this is one sector where the pandemic has had a considerable impact and also where we would anticipate a reversal for fortunes from specialists like Gattaca. Revenues have been declining since January 2020, but then you would expect that.
Don’t be faked out by the income decline
In its last trading update, issued in February, Gattaca said it was seeing a decline in net income from 1H 2020 due primarily to the impact of the pandemic. It said it expected to report net cash before IFRSS 16 adjustments of £22.9m (down from £27.3m in July 2020). However it also said it was seeing improving activity levels in its core markets. Quarter-on-quarter UK NFI growth in Q1 was 9% against Q4 last year.
Gattaca told the market it was implementing a group wide improvement plan and that it expected full year underlying PBT to be in line with market expectations.
“Our people are capitalising on the opportunities to move us at pace as we grow beyond the pandemic,” said Gattaca CEO Kevin Freeguard. “The strategy and focus on STEM skills and contract staffing is serving us well and we are seeing improved underlying activity across our core markets, including infrastructure and defence.”
Broker Equity Development raised its valuation from 225p to 280p per share at the end of May. It said it could see plenty of further upside potential from Gattaca. If the firm can consistently deliver NFI growth above GDP, on top of mid-high teen EBIT/NFI conversion across the economic cycle, then the stock would deserve a 10x EV/EBITA multiple. Equity Development said it could see the price moving as high as 420p by 2024.
Gattaca shares ARE looking quite expensive already for what it is, with price / earnings ratio over 180. Investors would need to be wary of a correction over the short term as the high price could cause some profit taking.
This article was researched using data from Stockopedia.