Matchtech Interim Results & Contracts

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.