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Gattaca – not mentioned with director share sale & then a “Statement re Share Price Movement” 3 weeks ago… but now a profit warning, dividend cut (& CEO resigns)!

By Steve Moore | Thursday 8 February 2018

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.

On 17th January Gattaca (GATC) noted “the recent share price fall” and responded that there would be a “minimal” impact of Carillion's liquidation on its balance sheet and that a “trading update for the six months ended 31st January will be released 8th February 2018”. However, at 2:30pm yesterday there were Trading Update and Directorate Change announcements. Hmmm…

“Gattaca plc, the specialist Engineering and Technology (IT & Telecoms) recruitment solutions business, today provides the following pre-close Trading Update for the six months to 31 January 2018. Overview… The group delivered an improvement in NFI over the period. UK Engineering performed positively, returning to growth in H1, although this was tempered by continued challenges seen in UK Technology, particularly in telecoms. Our International business continues to grow strongly, with the US delivering double digit growth in H1 following our investment there.”

Not too bad then? Well, overall underlying net fee income is +2%, though “PBT however, as expected, will be lower than in H1 of last year as a result of our investments in staff and support costs”. And it gets worse… “we have tempered our expectations for growth in H2… Notwithstanding… savings, profits before tax excluding non-recurring costs are now expected to be in the order of 15% below the board's previous expectations”.

That not expected 3 weeks ago then?! (and I also note just 2 days before that Chief Operating Officer, Keith Lewis, sold 18,842 shares)!

Market expectations were for a pre-tax profit of circa £17.5 million and a maintained dividend per share of 23p (£7.3 million). However, it is also now stated “the board has decided to reset the rate of dividend in order to restore a more sustainable dividend cover ratio, to enable the pay down of debt (estimated at £37 million at the half-year end), and to reflect a more normalised yield. The board intends to set the dividend cover at approximately 2x (2017 1x)”.

Chairman Patrick Shanley attempts to mitigate that “together with a strong and deep management team and excellent staff we are well positioned to reset the business for profitable growth”. So what’s the Directorate Change then?... “Brian Wilkinson has tendered his resignation as Chief Executive Officer… the board has commenced the process to recruit his successor as Chief Executive Officer and will look both externally and internally”. Strong and deep management team hey?

The move is attributed to “wishes to retire from full time executive roles… feels that this is the right time to hand over the baton to someone who can lead the company on its next journey”. Hmmm! I’ll review again on the results announcement - scheduled for 19th April, but the current trading and management situations see me, even at a now lower circa £68 million market cap, for now continue to avoid.

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