This week has been good for investors in recruitment firms, all the major listed companies have produced pleasing results, with some far exceeding market expectations.
Then specialist engineering and technology staffer Gattaca (GATC:AIM) goes and spoils the party by issuing a profit warning, sending its share price tumbling more than 9% to 272p.
The firm believes profit for the year to 31 July 2017 will miss expectations by approximately 10% to 15%.
Analysts at research house Equity Development have cut their adjusted pre-tax profit forecast the full 15%, or by £2.9m, to £16.7m. They have also trimmed 8% off 2018's figure, to £20m.
Gattaca says the Brexit result caused tougher UK trading conditions and softening of its net fee income for the first half of the year. Hiring decisions were also delayed.
Encouraging signs
More encouraging for investors is the firm reporting cost overruns regarding the setting up of international entities to support a contract win.
The firm intends to consolidate its central cost base and convert sales opportunities to growth over the next few years.
Broker Numis admits the news is ‘disappointing’ but has stuck with its ‘buy’ rating on the shares.
Numis points to an ‘undemanding’ price to earnings (PE) of eight-times supported by a dividend yield of 8%. Numis is the company's broker.
Another way to look at the apparently dirt cheap valuation is that investors simply do not trust forecasts, even lowered ones.
This is perhaps because Gattaca does not seem to have the scope to mitigate business down turns in the same way larger recruitment peers do.
A PE nearer the recruitment sector average of 15 would imply about 19p of earnings this year, based on the current share price level.
That’s a long way below the 34p earning per share anticipated by Numis, a level which would also leave the 23p per share payout uncovered.
