Harvey Nash Group Plc (LON:HVN) has released a trading update covering the first quarter ended 30 April 2018, ahead of its Capital Markets Day to be held this afternoon. Performance has been robust, with the strong organic growth seen in the second half of FY17 continuing into Q1. Group gross profit is +7% YOY, driven by robust performances in the UK & Ireland and Benelux, whilst the US market remains more challenging. Today also sees the release of the KPMG Harvey Nash CIO Survey showing an improvement in the proportion of respondents reporting budget increases and an intention to hire additional headcount. A solid first quarter of trading is supportive of our investment case with results tracking ahead of budget, underpinning our full year forecasts and providing upside potential going forward. At last nights close price, the shares trade on an FY19 PE of 7.7x yielding an attractive 4.3%.
Q1 trading: Group gross profit is up 7% YOY in Q1. In the UK & Ireland, the largest of the Group’s regions, gross profit rose 20% YOY, benefitting from robust growth in contractor volumes despite Brexit uncertainty, as well as contribution from Crimson IT acquired in September 2017. In Benelux, gross profit was 13% higher YOY with strong organic demand for contract recruitment and managed services. Gross profit is 7% higher in the Nordics region YOY including contribution from PAT Management acquired in July 2017 and Central Europe saw a 5.0% increase in gross profit in Q1. Trading has been more challenging in the Rest of World region, where exceptionally strong prior year comparatives have contributed to a 23% decline in gross profit YOY. Management has already announced a transformation programme at full year results (27th April) to address the headwinds faced in this market.
Business confidence is returning: Today also sees the release of the KPMG Harvey Nash CIO Survey 2018, with the proportion of companies reporting budget increases at a record high since 2005; 84% of survey respondents expect to maintain or increase their budgets whilst the proportion reporting a positive intention to hire additional headcount was up to 47% from 44% over the last three years.
Forecasts: We remain comfortable with our full year forecasts which are underpinned by Q1’s budget outperformance. We leave our numbers unchanged today reflecting low earnings visibility in the sector but continue to see upside potential to our projections going forwards.
Valuation: Harvey Nash Group Plc has performed strongly since its move to AIM last July. The completion of three complementary acquisitions alongside annualised gains from its internal transformation plan are helping it to deliver solid results. The shares trade on an FY19 PE of 7.7x yielding an attractive 4.3%
