A Company to Watch – Matchtech plc

A Company to Watch – Matchtech plc

Specialist technical recruiter Matchtech plc (MTEC.L) has a strong track record of delivering organic growth. Since arriving on AIM in October 2006, it has historically delivered profit growth well in excess of 20% and has grown its market share and blue chip customer base significantly.

Matchtech is the second largest technical recruitment specialist and the seventeenth largest recruiter overall in the UK based on net fee income (“NFI”).  Its unique business model, operating from a single site in Southampton, enables it to deliver industry leading margins by maximising efficiency whilst keeping overheads to a minimum.

The company has three divisions – Engineering, Built Environment and Support Services – supplying technically skilled “white collar” workers to a wide range of clients in these sectors. From structural engineers and project managers through to lab technicians and marketing executives, Matchtech places appropriately skilled candidates on either a permanent or contract basis.  Contract placements account for well over two-thirds of net fee income, giving Matchtech the added advantage of earnings visibility and recurring revenue.

With a good spread of customers – over 1,500 in total – and with its three biggest clients - Babcock International, VT Group and Mouchel - each generating less than 5% of NFI, the company is not too reliant on any big accounts. The re-signing of a 5 year contract with Babcock and a 3 year extension with VT Group in 2008 also demonstrates the long term nature of these relationships.  In addition, many of the customers are involved in large infrastructure and public sector projects offering added protection to revenues through the downturn.

For the year to 31 July 2008, revenues and PBT rose 28% and 22% respectively. The six months to 31 January 2009 inevitably saw a slowdown in growth with NFI rising 8% in the period although, within this, NFI from the Support Services and Engineering sectors still rose 17% and 10% respectively.

Whilst the difficult economic climate has reduced visibility for the remainder of this financial year Matchtech continues to focus on the publicly funded defence, transport and infrastructure sectors where demand has been most resilient. Furthermore, the flexibility and cost benefits from its single site model provide comfort, as does the low net debt of £3.9m (at 31 January 2009).

Since floating at 310p in October 2006, Matchtech’s share price peaked at nearly 500p in mid-2007 but has recently dropped back to as low as 163p. This puts them on a historic p/e of just 4.1x, with a dividend yield of 9.6%.

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