INTERVIEW: Harvey Nash Group Plc Shares Represent Excellent Value – Zeus Capital

Zeus Capital’s Head of Research, Mike Allen talks to DirectorsTalk about Harvey Nash Group Plc (LON:HVN). With the company providing a pre-close trading update today we asked Mike for his thoughts on the statement, the key themes, the Zeus forecast and valuation for the company.

An excellent result in the context of wider macro-economic uncertainty

Harvey Nash, the global technology recruitment and outsourcing group, is pleased to announce the following trading update in advance of the Group’s final results for the year ended 31 January 2018 (the “Period”) which are expected to be in line with market expectations. This would result in adjusted profit before taxation and non-recurring items being up c22% compared to the prior year. This is an excellent result in the context of wider macro-economic uncertainty, particularly in the UK.

UK & Ireland Gross Profit is up 6% year on year, with demand improving over the second half of the year for technology recruitment despite widely reported Brexit-related market volatility. This increase in demand was broadly spread across the UK with a number of financial services companies actively relocating operations outside of London.

Mainland Europe continues to be the key driver of organic growth in the Group, with Gross Profit up 5% overall year on year, led by strong demand for contract recruitment and managed services in the Benelux, which was up 20% year on year.

In the Rest of World, Gross Profit was 19% lower largely as a result of reduced contractor numbers in the USA and the impact of reductions in headcount. The transformation programme has put the Rest of World in a much better position going forward as we have focused the Group’s geographic presence on its core markets and closed loss making offices. Our outsourcing business in Vietnam exceeded management expectations along with executive search in the USA, which reported record results.

During the year we completed two acquisitions which are expected to be enhancing to earnings per share and are already delivering benefits with further improvement expected in the current year. Our transformation programme is on track, which is focusing the business on its core markets, streamlining the operations and improving efficiency and we anticipate further savings to flow through in the current financial year.

Trading cash flow was strong. Net borrowings at the year-end stood at £6.7m (2017: cash £5.5m). This change mainly reflects the investment in working capital to finance higher levels of turnover in the second half combined with an increase in debtor days to 40 days (2017: 38 days) as a result of changing business mix, as well as the cost of the acquisitions and the transformation programme.

We look forward to providing a more detailed update in the announcement of our preliminary results on 27 April 2018.

Albert Ellis, Chief Executive Officer, said: “I am very pleased to report that the outturn in the last financial year is expected to be in line with market expectations which were revised upwards on three occasions during the year. Last year was an important one for the Group, in which we initiated a transformation programme to streamline and refocus the business and completed two acquisitions. Our acquired businesses are already contributing to the Group’s profitability alongside good levels of organic growth.

We enter 2018, which is the Group’s 30th year since incorporation, with a strong balance sheet and well positioned to capitalise on the continued growth in demand for technology and digital skills.”

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