Free share tips posted weekly! This week’s free share tip is Gattaca (GATC).

Gattaca, an AIM-listed specialist recruitment business, announced results for the year ended 31 July 2021 last week.  Notable highlights were confirmation that the balance sheet remains very strong and the fact that dividend payments are restarting.  The impact of the Covid-19 pandemic continues to be felt but the company appears to be back on the front foot now and recent share price weakness presents an interesting opportunity.

The company provides recruitment solutions and support to employers in the engineering and technology sectors.  It has offices across four continents, enabling it to offer clients and candidates a localised service.  Originally known as Matchmaker Personnel, Gattaca was founded in 1984 and subsequently joined AIM in 2006 as Matchtech Group.  It has built a strong knowledge of the sectors it serves and in more recent years acquisitions have supplemented organic growth to develop the business further.

In the year ended 31 July 2021 revenue was £415.7m on a continuing basis (2020 restated: £534.7m) and net fee income was £42.1m (2020 restated: £52.8m).  Contract net fee income was £31.3m (2020 restated: £39.3m) and permanent recruitment fees were £10.8m (2020 restated: £13.5m).  Underlying profit before tax from continuing operations was £3.2m (2020 restated: £4.8m).  This translated into continuing underlying earnings per share of 8.4p, down from a restated 11.7p in the prior year.  Dividend payments have resumed with a final dividend of 1.5p per share declared.  It is worth noting that the ex-dividend date is 11 November.

Net cash as at 31 July 2021 (excluding lease liabilities) was £19.9m, down from £27.3m a year earlier.  The reduction in net cash of £7.4m was mainly as a result of £4.7m repayments of temporary VAT deferral and as at 31 July 2021 there was a further £5.6m outstanding.  Net assets were £40.9m at the period end, up slightly from a restated £39.8m twelve months earlier.

The outlook appears to be relatively promising and the company’s business model positions it well to benefit from any improvement in the economy.  Demand for STEM skills is likely to continue to increase although in the immediate future the company has noted that the pandemic is not yet finished.  The business should be able to exploit any market growth as it has focused on the same core area for over 37 years.  There should be a strong period ahead given major infrastructure projects in the UK as well as increasing demand for STEM skills alongside a shortage of candidates. 

Gattaca’s share price was over 200p going into November, having already been on a downward trend since June.  Although the price probably got ahead of itself in the middle months of 2021 it has plenty of scope to recover and we feel that a rebound is very much on the cards.  We rate the shares as a SPECULATIVE BUY.

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