Matchtech Group: Stock In Peer Range But With Premium Yield

Matchtech’s (MTEC.L) experience of the current recruitment market differs markedly from that of the generalists. FY12 figures to end July showed strong growth in net fee income, +21%, a rate that, given the trading backdrop, we expect to moderate in FY13. The contractors Matchtech works with are highly qualified and often in short supply, making the group’s high quality service to both parties even more crucial. Its balance sheet is strengthening and it has a premium (covered) yield.


Steady growth on contractor numbers
The number of contractors on assignment continues to grow steadily, driven by a series of substantial multi-year public and private UK engineering projects and by UK companies’ products and services being in demand around the globe, fuelling a level of demand for qualified engineers that often outstrips supply. Growth has continued into the first two months of the current financial year, although there has been some slowing of the time-to-hire within the permanent recruitment segment, as all parties weigh their options more carefully before making decisions. The Professional Services business, more recently established, is growing its client base and stabilising its workforce. It is starting to gain some traction within its chosen segments such as procurement, accountancy and HR and is gaining from the increasing prevalence of work-based training.

Reporting streamlined
With the proliferation of industries supplied over the years, Matchtech’s reporting lines, and the external communication of the business strategy, had become overly complex. From this point on, there are two reporting divisions – Engineering and Professional Services. The Information Systems & Technology segment has been moved across to the latter division, which it has more in common with, and Managed Services will no longer be reported separately. However, comparative figures will be reported to enable transparency.

Valuation: In peer range but with premium yield
The larger stocks in the sector have recovered from their lows but are still well below their spring peak as domestic and international economic prospects have faltered. Sector sentiment is unlikely to show substantial recovery short term. Matchtech sits around the top of the pack on EV/NFI but towards the lower end of range on EV/EBITDA. It does, however, carry a (1.6x covered) 6.6% yield, around a 65% premium to the sector average.

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