US Edition 
Questor share tip: Hold Matchtech on engineering shortage
The Aim-listed recruiter that specialises in jobs for engineers reports 20pc increase in annual profits, says Questor
Matchtech
570.5p+1.5p
Questor says HOLD
A SHORTAGE of engineering expertise in the UK was behind a sharp increase in revenue and profits in the full-year results released yesterday by Matchtech [LON:MTEC].
The recruitment company said that 7,100 contractors on assignment had generated net fee income of £45m – a 17pc increase on a year earlier – and pre-tax profits were up 20pc at £11.9m during the year ended July 31.
The growth in net fee income was flattered by the acquisition of Provanis, an IT recruitment specialist bought for £4.3m in September last year. However, net fee income still increased by 13pc, excluding the effect of the acquisition.
The company still makes the majority of its profits by providing engineers on contract to BAE Systems, Babcock and hundreds of smaller businesses.
Matchtech said net fee income from contractors increased by 21pc to £32.8m and the profit margin increased to 7.5pc, from 6.8pc a year earlier.
There was also a recovery in the placement of engineers into permanent roles. Permanent recruitment fees increased by 9pc to £12.2m, during the year. This is an encouraging sign for investors as increasing permanent placement is a sign of rising confidence among candidates and employers; typically, it is also a higher profit-margin business.
Adrian Gunn, chief executive of Matchtech, said he was disappointed in the progress in the permanent sector as strong demand for candidates was elongating the permanent recruitment process.
Matchtech increased the anual dividend by 11pc to 20p per share, which goes ex-dividend on November 5 and will be payable on December 5.
The balance sheet is also in a strong position, with net debt cut by more than two thirds to £3.1m, from £10.5m a year earlier and despite the acquisition during the period.
Since Questor recommended buying the shares last year (540p, October 17) the shares have increased by 4.2pc against the wider FTSE Aim which has fallen 13pc during the same period.
The long-term outlook for infrastructure and aerospace spending looks solid and we would continue to hold for income.