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As I flagged yesterday we have had, amongst many announcements today, a couple of news releases from Matchtech (MTEC) the AIM listed £163m Market Cap. international recruitment consultant which describes itself in one of its announcements as follows:The UK's leading specialist engineering and professional services recruitment agency, providing contract, temporary and permanent staff. Established in 1984 and AIM-listed in 2006, the Group is one of the fastest growing staffing organisations listed in the UK, with a well-balanced business model; approximately 70% contract and 30% permanent. The Engineering division spans five specialist sectors - Infrastructure; Automotive, Maritime; Aerospace; Energy - as well as General Engineering. The Professional Services division covers technology markets through our Connectus and Provanis brands and Professional Staffing though our Alderwood and Barclay Meade brands. In April 2015, Matchtech Group plc announced the completion of the acquisition of Networkers International, a global recruitment company specialising in the delivery of recruitment services focusing on Telecoms and Technology. The combined group is well-placed to take advantage of the convergence between Engineering, Technology and Telecoms skill sets and creates a specialist recruiter, of scale, in the UK and internationally, with: • 18 offices in 12 countries, recruiting in over 100 countries across the world • Over 580 sales staff • 9,000 contractors and 4,000 permanent placements In the first of today's announcements they presented Half year figures to the 31st January 2015 which I have to say on first appearances seemed pretty underwhelming with Net Fee Income (NFI) up by just 2% to £22.5m & Contract NFI up by 3% to £16.3m and Permanent Recruitment fees flat at £6.5m. Headline profits were in fact down by £0.9m (-14.5%) to £5.3m, but this was due to due to non-recurring items of £0.7m of acquisition costs and £0.2m of restructuring costs, so flat underlying otherwise. They suggested that underlying Pre tax profits were up by 5% to £6.3m which fed through to underlying earnings per share up 2% to19.9p (2014 H1: 19.6p). The dividend was raised by 5% to 5.68p although I note this is slightly below the 6.67% forecast for the full year, but presumably this can be made up in the second half as it was last year. Net debt at 31 January 2015 reduced by £6.7m to £1.9m (2014 H1: £8.6m) although this will have obviously changed some what pro forma post the Networkers International acquisition which completed in April 2015. The acquisition valued the entire issued and to be issued share capital of Networkers on a fully diluted basis at approximately £57.9 million. Further Information about Networkers and the acquisition was provided in the Group's announcement on 28 January 2015. So I would say sadly nothing to get excited about in the results announcement but their second announcement today about some more contract wins which were described by them as "significant". These coming on top of the recent contract win with Southern Water are more encouraging as they suggest some good momentum for the new combined entity. There were 2 new contracts 3 year contract. The first one is with Zodiac Aerospace, a world leader in aerospace equipment and systems, to recruit aerospace engineering candidates, on both a contract and permanent basis. While the second one is with contract with HCL Technologies, a leading global IT services company. The Group will act as one of four companies engaged as part of a contract framework to provide candidates across all IT skill sets on both a UK and European basis. The final aspect of the announcement was a 3 year extension to an existing contract with BAE Systems, a global defence, aerospace and security company. The contract, which runs until the end of 2018 with the option of an additional one-year extension, is to provide contingent labour with Engineering and Technology backgrounds to the Company. Summary & Conclusion The shares are up by about 5% or so since I wrote them up back in early February, which is why I said they had been a bit pedestrian, although on reflection I see this is slightly ahead of the market since then. Thus the rating for the current year is little changed at around 13x with a 4% yield which is nearly twice covered by earnings, which seems fair enough provided they deliver the expected 16% or so forecast growth in earnings to 41p. On this they said in today's announcement: "Based on opportunities won, trading in the two months since the half year and continued close cost management the Board anticipates the Group's results for the year to 31 July 2015 will be in line with expectations with an additional maiden four-months contribution from Networkers from April to July." So steady as she goes here and hopefully they will bed in the acquisition and it will lead to more successful contract wins like those seen recently. On that basis I'm happy to hold this one as it should also benefit from the current strength in the domestic economy and a tightening labour market. If you didn't get in earlier in the year at 500p the shares have drifted back recently as you can see in the chart below. They look like they are building a base between 500 and 520p and could find support from the 200 day moving average which is currently at 522p. So if you like the story and can stomach an AIM stock they may be worth picking up on weak days in the 520p region and below, but probably no rush based on today's numbers. 
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After statistics recently saying that M & A activity hit its highest levels in Q1 2015 since 2007, today we have the recommended £47bn deal from Royal Dutch Shell (RDSA & RDSB) to buy BG Group (BG). On top of that there are rumours that Vivendi want to buy Sky and chat that Google might want to buy Twitter.
All quite exciting stuff and should help to keep the market bubbling away near its highs ahead of the election. Not so good for RD Shell holders though as their shares are down by around 5% on the back of them paying up for the perennial bid candidate BG Group. Within the announcement they did commit to dividend of at least $1.88 per share for the next two years which puts it on a close to a 6% yield at the current price below 2100 pence with share buy backs of $25bn from 2017 and 2020. However this does seems like a bit of a punt on a recovery in the oil price as they say this buy back programme is subject to progress with debt reduction and Brent oil prices recovering towards the middle of Shell's long term planning range of $70-$90-$110 per barrel. Aside from that we had a decent looking Q1 update from the recruitment group Robert Walters (RWA) which has sent them up by 5%. This included excellent growth in the UK with net fee income increasing 22%, with a broad-based upturn in permanent recruitment activity across both London and the regions. This should augur well for Matchtech (MTEC) (which I have written up in the past) who report their results tomorrow after the recent closing of their deal to buy Networkerts International. So I would hope this might be a catalysts for the shares to get a bit of a move on as they have been a bit pedestrian up to now. ..to a new high on FTSE 100, although personally I wouldn't get too excited about that. I guess we might see it consolidate it's recent gains to try and confirm a break out, but in the meantime I'll be continuing to focus on individual stocks.  Talking of which, while I was away last week I see we had amongst other things like the budget, final results from EMIS the healthcare software provider, Phoenix Group (PHNX) the closed life consolidator and a Q3 trading update from IG Group (IGG). I also note that there were the usual strong results from Next (NXT) although marred somewhat by a more downbeat / realistic assessment of the growth prospects for the current year from their highly regarded CEO Simon Wolfson. This probably makes sense with the forthcoming election and the associated uncertainty given the range of possible outcomes.
Of the others IG Group seemed fine ex the hit from the Swiss Franc move, while Phoenix Group results seem to have been well received with the shares moving up further, although I note they only maintained and talked about a sustainable dividend on the back of cash flows from their closed books of life policies. They also paid down some debt and are targeting an investment grade credit rating, although I note their debt pay down is expected to slow this year. Thus it seems OK so maybe my concerns on this one are misplaced, but as I'm not desperate for yield I'd rather focus on stocks with lower yields and better growth prospects. EMIS results seemed fine and the outlook statement struck a positive tone, but the shares were largely unmoved on the back of this. This probably reflects the re-rating the shares have enjoyed in the last year as they have risen from around 600 pence when I first wrote them up. With the shares now closer to 900 pence and not far off their all time high, they now look less attractive as the rating has moved up close to 20x this years forecast earnings and the expected yield is only just over 2% at 2.24% which leaves it close to being a sell on my 2% & 20x sell discipline. That being said it seems set fair and the quality is reasonable and they seem to have been able to grow the dividend by around 10% over the last 5 years including the latest 18.4p dividend. So the returns should be acceptable, it is just the price you have to pay now is getting quite high, so probably not one to chase up here. Today in brief I note that Matchtech (MTEC) which I wrote up in February has announced some contract extensions and a new contract with Southern Water which as Keith Lewis, Chief Operating Officer of Matchtech Group plc, said: "These contract wins clearly demonstrate how the breadth and knowledge of our specialist recruitment teams is enabling the Group to meet the demands of new and existing clients alike in sourcing high quality candidates across both the engineering and professional sectors." These shares have not moved much and still look good value on around 13x with a 4%+ yield and the benefits of the acquisition of Networkers International still to come. Apart from that finally I note that Pennon Group (PNN) have confirmed a continuation of their RPI+4% dividend policy to 2020 after the recent regulatory review completed. So on a yield of close to 4% that doesn't seem too bad if not outstanding, cheers. |
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