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 have just hosted a Capital Markets Day, what were the key themes that you noted there Mike?
A1: The company had a Capital Markets Day yesterday and that was on the back of a Q1 trading update which showed very healthy growth year on year across all of its regions. The Capital Markets Day was really a chance to give investors a view of the various core markets within the Group delivered by the divisional management teams.
We felt it was a really good exercise to meet these divisional directors and for them to talk through the markets, I guess what struck us really was the federal management system and the entrepreneurial management that are able to run these businesses in line with the local markets. They also showed us some interesting industry data as well which showed the supply/demand dynamics in the core IT space has ever-ready been as strong over the last 5 years so that was encouraging and is included in our research note that was published this morning.
Q2: So, as an investment, what is your view on the stock?
A2: We still like the stock and the stock is at a 5-year high at the moment, it’s clearly responded very well to the transformation programme that the management team have executed very well. So, there’s been good cost savings made in the business, organic growth in the business is strong as well and they’ve also benefitted from their acquisition strategy which appears to be going very well on integrating into the Group. So, for us, the valuation is fairly undemanding.
Q3: In terms of the valuation, what are your thoughts?
A3: We still think the valuation is undemanding as I’ve said, it’s trading on a 2019 PE of about 8 times, EV/EBITDA of 5.5 times and a dividend yield just short of 4%. I think it’s also important to note that the company, via dividend payments, have returned around £24 million to shareholders over the last 10 years which in the context of the £80 million cap I think is pretty impressive at the moment as well.
So, it still trades at a discount to the larger peers in the recruitment sector and I think compared to some of the smaller recruitment operators at the moment the earnings momentum and growth at Harvey Nash is superior versus some of the downgrades that we’re seeing elsewhere in the sector.
We still think it’s undervalued, the strategy is going very well and it was really interesting to get a clear view into some of the core market yesterday.