Gattaca guides lower but remains positive about future years Gattaca guides lower for current year

A big yield and low p/e offer support and plenty of upside potential once the company gets its act together

gattaca, recruitment

The market has been sceptical about specialist recruitment firm Gattaca (AIM: GATC) for some time. Forecasts had already been trimmed following soft trading surrounding last year’s referendum, with February’s update saying first half fees were down 5 per cent on a like for like basis. Management did say at the time that the demand picture for skilled engineers was improving and that it had ‘confidence that profit for the full year will be in line with its previous expectations’.

Downgrade

It turns out the stock market was right not to give lowly-rated Gattaca the benefit of the doubt. Today the company has guided forecasts for the July year down by 10-15 per cent. However the problem appears to be more an internal one rather than a further deterioration in trading. There have been cost overruns in setting up the infrastructure to handle a pan-European contract and back office savings are taking longer to come through than hoped. Investment has also been running at an elevated level with more sales staff being taken on. Management say it is confident these investments will have an impact on raising the growth rate next year.

Higher costs

A key issue is whether these higher costs are indeed temporary and that the savings in central costs next year are deliverable. The difficult trading backdrop has exposed any challenges that came with integrating the Networkers acquisition and expanding internationally. If things do start to move in the right direction on both the revenue and cost lines next year, then Gattaca clearly offers a lot of value. The dividend ought to be safe which provides investors with a decent return while we wait for better trading news.

Big yield

With the shares off 10 per cent at 270p, they provide a yield of 8.5 per cent and trade on a p/e of 7.8 times earnings for the year to July. Broker Numis now looks for 39.7p next year (a 5 per cent downgrade) which gives a p/e of just 6.8 to July 2018.

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