ii view: Covid hire freeze hits PageGroup hard

Shares for this global employment agency are down 30% in 2020.

Second-quarter trading update to 30 June

• Fee income or gross profit down 48% year-over-year to £118.3 million
• Net cash of £156 mullion   

Guidance:

• Offering no current year estimates

Chief executive Steve Ingham said:

"Our main focus in the first half has been to protect our people, whilst protecting our platform. I am incredibly proud of the reaction of our staff in what has been an extraordinary period. Their response to this crisis has been exceptional. They have understood the importance of the actions we have taken to protect our platform and put ourselves in as strong a position as possible for when the recovery comes. Whilst it is always regrettable to let any people go, we have chosen not to make wholesale changes and to retain our proven fee earners.

"PageGroup has a deep core of engaged and motivated employees and we will continue to support them and look to add expertise over the coming months and years. We know the future remains unpredictable, but we believe now is the right time to start reinvesting in our flexible and highly diversified business model. Having weathered a particularly challenging Q2, we now look forward to driving improved activity and gross profit through the second half.

ii round-up:

Global employment agency PageGroup (LSE:PAGE) today reported a 48% fall in second-quarter fee income, hit by a freeze on recruitment as corporate customers looked to conserve cash during the Covid-19 pandemic. 

Fee income in its biggest region Europe, the Middle East and Africa fell by 43%, with France more than halving. The group whose brands include Page Executive and Michael Page, has around 140 offices in more than 30 countries. 

PageGroup shares fell by more than 1% in afternoon UK trading and are down around 30% year-to-date. Shares for rivals Hays (LSE:HAS), SThree (LSE:STEM) and Robert Walters (LSE:RWA) have all suffered similar declines in 2020. 

Fee income for permanent placements more than halved in the quarter, while temporary worker placements fell by around a quarter. Page consultants operate across 25 arenas from actuarial to technology.

Fee income for the first quarter to the end of March fell by a more sedate 12%, with business lockdowns in the UK commencing in late March. 

Group measures to cut costs and batten down the hatches to see out the pandemic have included staff losses and the cancellation of the 9.4p per share final 2019 dividend. Fee earner headcount reduced by over 500 in the second quarter, mainly in the UK and the Americas.

Page had net cash of £156 million on 30 June, up from £83 million at the end of the first quarter. It had also been approved for the Bank of England's Covid Corporate Finance Facility (CCFF). The facility has a maximum availability of £300 million, although management does not currently envisage having to draw down on it.

First-half results are scheduled to be announced on 5 August.

ii view:

Page was founded in 1976 and today employs over 7,000 staff globally. In 2019, Europe, the Middle East and Africa generated around half of total group sales and profits. Asia Pacific came next in terms of gross profits, then the Americas closely followed by the UK. 

Permanent staff placements generated three-quarters of total group gross profit. Accounting and financial services provide its biggest customer segment, generating just over a third of gross profit, followed by Legal, Technology, HR and Secretarial at around a quarter.  

For investors, swift action to bolster the group’s finances in what will clearly be a tough period of virus-impacted trading is favourable. It is the market leader in many of its markets and has an experienced senior management team. 

But consultant numbers have been trimmed, the dividend suspended, while the timing of any economic rebound from Covid-19 is highly uncertain. For now, and with no group evidence of recovery in sight, investors may wish to keep watch for now. 

Positives: 

• Business sector and geographical diversity
• Cost base reduction of 21% achieved in Q2

Negatives:

• A near halving in second quarter fee income
• Dividend payment cancelled

The average rating of stock market analysts:

Strong hold