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Harvey Nash happy to acquire as recruiters polarise after Brexit

Clout and size in markets is what large companies want, says CEO
Brexit wobble has passed but smaller companies may be hit long-term

Recruiters have had a rollercoaster twelve months with Brexit, elections and changes to tax laws making for an unsettled backdrop.

Brexit still features strongly in the minds of investors but the good news now though is that, if anything, the impact is helpful.

Albert Ellis, IT specialist Harvey Nash’s (LON:HVN) chief executive, says the market has fully recovered after the EU vote a year ago sparked fears employers would stop recruiting.

Steady progress

Recent interim results showed a steady performance with gross profit, the equivalent of revenue, up slightly at £48.2mln, while pre-tax profits rose by 4% to £3.95mln.

The UK in particular was ‘robust’ while Europe’s contribution, too, held up as held as a good performance in the Benelux countries and in Northern Europe offset dips in Germany and Switzerland.

Harvey Nash’s geographical diversity is one of its strengths with turnover split 40/40/20 between the UK, Europe and Asia/US.

Consolidation potential

Some 60% of revenues come from temporary placement and 40% permanent, though this balance has shifted a little following the recent acquisition of fellow IT recruiter Crimson. Harvey Nash paid an initial £6mln for the UK-based group, which can rise to £15mln depending on performance.

Crimson, which made a profit of £1.7mln in the year to March and has a 50/50 balance between permanent placement and solutions, was the second acquisition this year following the much smaller deal to buy PAT Management in Sweden for £1.7mln.

Ellis can see Harvey Nash as a consolidator in the sector as he believes one of the long term consequences of Brexit will be a shift towards larger companies.

“Brexit has really made companies look at their supply chain and procurement needs.”

Clout increasingly important

Clout and size in markets is what large companies want and boutiques and small company owners are worried they will be sidelined by this migration to larger companies.

“The impact of Brexit on them therefore potentially is much worse.”

Of course, this offers opportunities for the likes of Harvey Nash to expand through bolt-ons and Ellis says the company is happy to look around the world if the right deal comes along.

“We look at the pay packages of software developers and executives in a country. If they are in the world’s top quartile it is attractive to us.”

High internet and digital penetration are other attractions.

“That’s where we want to be as fees and revenues are a function of that digital infrastructure. Places such as Finland, Ireland, Sweden and the UK”

Ellis says Harvey Nash is already eyeing gross revenues of more than £1bn after a half-year increase of 12.6% to £425mln, which was before Crimson makes any contribution.

AIM dividend payer

There are challenges.

Internet–based recruitment, through the likes of Linked-In, is a headache Ellis says but he believes Harvey Nash can convince clients that it is worth paying a fee rather than hiring online.

“We are very good at referencing and excellent at track records, skills and relationships with management.

Recent cyber security scares are helping here as companies now are increasingly conscious both of the risks of a hack into their systems and also of an internal data breach,

 “You have to be very careful hiring someone who has access to chief executive’s email,” Ellis adds.

Investors have warmed to the story again after last year’s Brexit turbulence, with the shares at 91p just below a year’s high and valuing Harvey Nash at £67mln.

Having also just moved from the main market to AIM, Harvey Nash is also one of the junior market’s higher and most secure dividend payers.

The interim dividend rose by 5% and if the full year dividend goes up a similar amount the prospective yield will be 4.7%.


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