Matchtech Group

Amid highly testing trading conditions, technical recruiter Matchtech is drawing strength from its contractor-led focus and ability to source skilled and sought-after workers.

Specialising in the engineering, built environment and support services sectors, Southampton-based Matchtech, led by CEO Adrian Gunn, recently reassured investors with a broadly positive update, covering the six months to January.

Trading, it said, has ‘continued in line’ with the board’s expectations, with total net fee income (NFI) for the first six months coming in at £12.4m, a 9% reduction on the preceding six months to July. Admittedly, across all sectors, contractor rates and margins remain under pressure, but in an encouraging sign, contractor numbers increased by 7% in ‘H1’, with most of the growth coming from the engineering sector. And what is more, income from permanent recruitment demonstrated resilience, remaining stable half-on-half.

Though economic turbulence rumbles on, Matchtech continues to diversify, with its new engineering markets-focused Stuttgart operation having made a ‘sound start’ and its ‘elemense’ Recruitment Process Outsourcing (RPO) brand showing early success signs. In another positive development, the cash-generative, cost-conscious concern reported a recent swing from a net debt to a net cash position.

For the current year to July, expect a significant pre-tax profits dip to £7.9m (2009; £11.3m) on lower NFI of £24.5m (£30.3m). However, forecasts suggest potential for a return to growth in 2011, when £8.7m pre-tax looks feasible on £28m of NFI.

Based on 2010 earnings of 24p and a maintained dividend of 15.6p, the shares are swapping hands for less than ten times earnings, a rating reflecting uncertainty regarding the timing of economic recovery. Nevertheless, considering the group’s improved balance sheet, broadening business base and the 7% yield on offer, we now view the shares as a more than decent recovery bet.