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Gattaca – from confident of profit “in line” to 10-15% below expectations in 10 weeks

By Steve Moore | Thursday 13 April 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Engineering and technology recruitment company, Gattaca (GATC) has updated that “the board has reviewed its outlook for the remainder of the year to 31 July 2017 and now believes that profits for the year will be approximately 10-15% below its prior expectations”. Uh oh.

This follows a 2nd February update which included that, with “investments over the last 12 months, the phasing of planned client projects in the second half of the year and, encouragingly, the improving performance of our IT division, the board has confidence that profit for the full year will be in line with its previous expectations”.

However, I noted that this suggests a reliance on a strong second half performance and that, amidst current macro uncertainty, I was particularly wary of this. This has proven wise, with the company now noting;

“Unanticipated one time cost overruns relating to the setting up of international entities to support a pan-European contract win and delays in realisation of back office cost savings.”

And that;

“The group has continued to strategically invest… we expect to see a return on these investments during the second half and beyond. We are particularly confident that the headcount investments which we have made in our overseas businesses will lead to accelerated growth next year.”

Hmmm. “Particularly confident” for next year, but not the remainder of this then? The company also seeks to emphasise that “the medium-term outlook in our sectors remains positive with some signs of a return of confidence in recent weeks”.

The valuation will continue to look attractive, but I’ll be looking for some consistent delivery before considering this for any better than the watchlist and, for now, continue to avoid.

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