Gattaca PLC (LON: GATC) 

Gattaca PLC is an FTSE AIM All-Share index listed Company involved in specialist Engineering and Technology recruitment solutions business. Moreover, the Company has been hiring STEM (Science, Technology, Engineering, and Mathematics) talent partners over the last 37 years since 1984.

(Source: Company Presentation)

Recent trend of dividend payments

The Company aimed to maintain dividend payout of approximately 50% of profits after tax. Moreover, the Company announced in 2018 that it wouldn’t pay any dividend because of the large amount of debt piled up on the balance sheet. Meanwhile, the Company will pay a final dividend of 1.50 pence per share on 17 December 2021, while the ex-dividend date was 11 November 2021. 

Growth Prospects

• Increase in Sales Headcount: The UK sales headcount witnessed a moderate growth of around 16% between January 2021 and July 2021.
• Increased Demand for STEM Skills: GATC remained focused on STEM (Science, Technology, Engineering, and Mathematics) skills as there was a short supply. The Company aimed to capitalize on the market opportunities by supporting clients in finding the talent that they required.
• Restructuring Completed: GATC emphasises on eight target industry sectors, including Defence and Infrastructure. Meanwhile, the Company had expanded fulfilment function, both in the UK and via lower-cost offshore resources.

Key Risks

• Weak Financial Performance: The Company’s top-line revenue and bottom-line profitability witnessed a significant decline during FY21.
• Wrong Strategic Choices: The failure of partner relationships could adversely impact the business in the near term.
• Increasing Covid-19 Cases: The rising Covid-19 cases across the Europe may hamper the hiring across the STEM division.
• Federal Tapering: The expected Federal tapering at the pace of USD 15 billion per month starting later this month may adversely impact the equity markets.
• Surge in UK Inflation: The UK inflation reached a 10-years high as it surged by around 4.2% for the 12 months ended October 2021. It may cause a sooner-than-expected interest hike.
• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.3% during Q3 FY21, which remained merely lower-than-expected growth of around 1.50%.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Gattaca PLC.

Materna (George Douglas Peter) is the most significant shareholder as it holds nearly 8.08 million shares as of 30 September 2021. 

FY21 Financial & Operational Highlights (for twelve months ended 31 July 2021, as of 04 November 2021)

 (Source: Company result)

• Modest Profitability: The profit before tax went down by around 32% on an underlying basis, while it went up by around 68% on a reported basis during FY21.
• Decent Cash Position: The Company had maintained decent net cash of £19.9 million as of 31 July 2021.
• Revolving Credit Facilities: GATC had managed to pay revolving credit facilities and became covenant free during FY21.
  

Financial Ratios (FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 23 November 2021, at 08:42 AM GMT, GATC’s shares were trading at GBX 139.40, down by around 8.89% from the previous day closing price. Stock 52-week High and Low were 288.00 and GBX 68.00, respectively.

From a technical perspective, the stock price is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price. Furthermore, the 14-days RSI of ~28.14 indicates an upside momentum in the stock price.

Over the last one year, GATC’s stock price has delivered a positive return of ~77.91%, and it has outperformed the FTSE All-Share Industrial Support Services index (benchmark sector) with a return of around 29.92% and FTSE AIM All-Share index (benchmark index) with a return of approximately 17.89%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

The Company had witnessed slightly weaker top-line and bottom-line business during FY21 as the clients remained cautious in hiring new talent during H1 FY21 due to the adverse impact of the Covid-19 pandemic. Moreover, the major infrastructure projects in the UK and rising optimism amongst the client base would drive the top-line business growth. The shortage of talent in the STEM sector would benefit GATC over the medium term.

Considering the penny nature of the stock, GATC may undergo sizeable corrections because of the rising interest rates prospect, global inflation, and lower-than-expected growth UK GDP growth during Q3 FY21. Thus, it would depend on the risk appetite of the clients to take a reasonable position on this company having several operational growth prospects.

Considering the favourable industry dynamics, robust UK jobs market, decent leverage position, resumption of dividend payments, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Gattaca PLC at the current market price of GBX 139.40 (as on 23 November 2021 at 08:42 AM GMT), with lower-double digit upside potential based on 14.50x Price/NTM Earnings per share (approx.) on FY22E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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