Edison | Feb 11, 2013 05:24AM ET
The trading update to the end of January confirms that Matchtech Group PLC (MTEC.L) is on track to meet our forecasts, with an 8% net fee income (NFI) growth in the first half. Demand for highly-qualified engineering and technology contract staff continues to be good, with 5% more contractors on assignment than in the previous year. Unlike some others in the recruitment sector, Matchtech’s permanent fees are also stable, despite subdued confidence. The shares are trading around 10% below mid-sector on an EV/EBITDA basis and carry a premium (covered) yield.
Professional Services building scale
The Professional Services recruitment area (37% NFI) gives breadth to MTEC.L’s operations and should trade according to a different cycle. Growth in contract NFI in this division has picked up strongly (+28%), but permanent recruitment is still being reined in by candidate vacillation and existing employers preferring to retain staff rather than recruit and train in the face of continuing economic uncertainty.
Valuation: Unjustified discount
The larger recruitment stocks have shown some share price recovery over the last six months, but are still well below their peak of last spring. Domestic and international economic prospects have continued to be mixed at best. Sector sentiment remains subdued. On our unchanged forecasts, MTEC.L sits around the top of the pack on EV/NFI but at a c 10% discount to the average EV/EBITDA on current and prospective years. Its balance sheet continues to improve (we forecast gearing a 42% fall by the July year end) and the shares also carry a (1.8x covered) 5.8% yield, approximately a 63% premium to the sector average.
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