- Net fee income declines 13 per cent to £19.7mn
- Adjusted pre-tax profit up 10 per cent to £0.8mn
- Full-year guidance reined back
Gattaca (GATC:93p), the specialist science, technology, engineering and mathematics (STEM) recruitment business, has not been immune to the waning confidence that has led to a sharp fall in permanent recruitment.
In the first half, group net fee income (NFI) declined 13 per cent, equating to a 9 per cent fall on an underlying basis after adjusting for an uneconomic contract exited from the defence sector. Permanent fees fell by a quarter as temporary recruitment freezes were introduced by several clients. Although contract fee income also declined, the reversal was only 3 per cent and the exit rate showed growth at the 31 January 2024 period end.
A focus on costs has mitigated some of the damage including reductions in headcount, consolidation of property and shrinking overseas operations. Importantly, a high proportion of permanent consultants have been retained, so the business is well positioned to benefit from any recovery in activity volumes later this year.
That said, subdued activity levels in permanent recruitment mean that the directors have guided down full-year pre-tax profit estimates from £2.8mn to a range of £2.4mn to £2.7mn. In the 2022-23 financial year, the group delivered pre-tax profit of £2.6mn. The reduced guidance led to a 10 per cent drift in the share price post results although they are still ahead of the 74p recommended buy-in price in my 2023 Bargain Share Portfolio.
It means that net cash of £22.3mn (71p) accounts for three quarters of Gattaca’s market capitalisation of £29.3mn, so effectively the operational business is valued at £7mn or 3.5 times Equity Development’s new full-year operating profit forecast of £1.9mn.
It’s not as if the cash pile is not earning money as net interest income is expected to treble to £0.6mn and deliver a quarter of analysts’ full-year pre-tax profit estimate of £2.5mn. On this basis, expect earnings per share (EPS) to edge up slightly to 4.7p, albeit that’s a far cry from the 6.5p forecast when I updated my portfolio in mid-February 2024. A cash-adjusted price/earnings ratio of 4.7 fails to factor in the possibility of any recovery in activity levels in the 2024-25 financial year. Recovery buy.
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