A Look At Matchtech Group

Matchtech’s interim figures confirm continuing good growth in net fee income (NFI) from contract specialist engineering staff and a resilient performance in permanent placement. Improvements in underlying NFI conversion from 20% to 26% reflect greater leverage being achieved by the brands and good cost control. Our forecasts for the remainder of the year and the next are unchanged (but for the tick-up in the dividend) and are more firmly underpinned by contract extensions.

Engineering Power House
The strength of the group’s offer in Engineering, with strong client relationships and the ability to source contractors with appropriate skills and experience, comes across clearly in the financial performance, with this division representing 62% of NFI (Professional Services the balance). NFI grew across most subsectors, with the strongest growth coming from the Automotive and Aerospace segments, ahead by 21% and 13% respectively. Contractor numbers are steady around the same level as the year end, up by 5% on the year. The outlook is underpinned by the positive backdrop for large-scale infrastructure projects and by contract extensions with key clients; one announced in March (BAE Systems via Xchanging, two more confirmed today (Babcock Marine and Technology extended to end-March 2014, TfL also extended to March 2014). A new managed service contract with UK Power Networks was also disclosed in March, running for two years.

Professional Branding
Professional services is heavily weighted to permanent recruitment (47% of divisional NFI), but its contract NFI performed strongly in H113, up 16% like-for-like, as its brands gain traction in their respective markets (Barclay Meade: professional staffing, Alderwood: employability and skills and newly-created, Connectus: technology staffing). Cross-selling opportunities have yet to be fully exploited.

Valuation: Rating Recovery
Matchtech’s share price has performed well over the last six months as the market has started to appreciate its differentiation from more general recruiters, for which domestic and international economic prospects have continued to be mixed at best. On our unchanged forecasts, Matchtech sits on top of the pack on EV/NFI and is priced nearer to the larger, more liquid stocks in the sector on EV/EBITDA. Its balance sheet continues to improve (we forecast gearing falling to 42% by the July year end) and the shares carry a (1.7x covered) 4.5% yield, around a 36% premium to the sector average.

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