Harvey Nash Group plc (LON:HVN) is the topic of conversation when Zeus Capital’s Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview
Q1: Harvey Nash provided a pre-close trading statement update today and it seems a very positive update. What are your thoughts on the statement?
A1: We thought the statement was extremely positive and solid. In essence, they say that their adjusted PBT will be up circa 22% compared with the prior year and that will be marginally ahead of the forecast that we had in the market.
Within the mix, the UK, despite Brexit, continues to perform well and that was up 6% year-on-year, mainland Europe continues to be a key driver of organic growth in the business and that was up 5% on gross profit terms year-on-year. The Rest of World was weaker and a bit mixed but that really reflected some housekeeping activities that they’re doing there as they streamline the business and we’d expect them to get some benefit from those restructuring efforts next year. Vietnam continues to perform very well and the acquisitions that they made last year are also integrating very well.
So, good progress on a number of different fronts.
Q2: It sounds like they’re in a good position, what key themes did you note in the update?
A2: I think geographically, it’s mixed but it’s going the right direction, clearly the UK I think that’s a very solid number there in the context to the rest of the sector, Europe continues to do well and Rest of World, they’re restructuring.
I think in terms of acquisitions, they are going as they said and they’re integrating well, and the transformation programme is also driving some good efficiencies across the Group as well.
Q3: What can you tell us about your forecast?
A3: In terms of that valuation, we think it remains very compelling, to January 2018, the numbers that they’ve already confirmed that they’ll slightly exceed. PE is around 7-8 times which is a sizable discount to the sector at around 40%, going into 2019 and 2020, equal to about 6 times, EV/EBITDA of sub 4 times and a dividend yield that rising in excess of 5%.
So, I think given the growth that this business is delivering through a number of different avenues, the shares to our mind represent excellent value and its trading at a 30-50% discount to the recruitment space despite the above average growth.