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Hydrogen+ - Preview of pre-close trading update

Hydrogen - Preview of pre-close trading update

Hydrogen issues a pre-close trading update covering the six months to June on Tuesday, 9th July. We think that the key themes likely to emerge within the statement are the improvement in contract revenues modestly offsetting the continued weakness in permanent net fee income (NFI) continued weakness in the UK, with the Technical & Scientific businesses delivering continued growth in the international businesses (with Asia outpacing growth in Europe). While our belief is that in Australia there was a further lurch down in activity levels in the wider market, HYDG is growing from an immature and low base and as a result is likely to have delivered some growth YoY.

The issue is whether or not the reduction in costs in H2 2012A is enough to offset the increase in costs since, particularly in terms of new office openings (Houston and Stavanger as highlighted at the time of the preliminary results) and headcount. Year end headcount was largely unchanged YoY in December 2012 and hiring is very dependent upon: productivity (a key focus), growth internationally and key hires in order to further the group’s strategy of & lsquo;joined up practices’, which have a global focus. Overall, we think it cautious to assume hiring continued overall and as a result, we think that while there may have been sequential growth in EBITA from H2 2012 levels, we think it is unlikely that there will have been growth in profitability YoY. As a result, we think that unless NFI levels improve during H2, coupled with further cost reductions taking place, then the current consensus estimates may well prove too demanding for FY2013F. On a FY2013F EV/EBITDA and PER ratings of 6.3x and 9.6x respectively, we consider the shares represent good value relative to its peer group.

Shore Capital Stockbrokers act as broker to Hydrogen Group. In line with our conflicts of interest policy we do not have recommendations on & lsquo;house’ stocks.


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