ii view: recruiter Page Group points the profit arrow higher

Diverse geographical exposure and a record March for some markets. Buy, sell or hold?

First-quarter trading update to 31 March

• Gross profit up 2% to £184.2 million
• Net cash of £136 million

Guidance:

• Full-year operating profit expected to be between £90 million to £100 million 

Chief executive Steve Ingham said:

“I am pleased to report that year-on-year results in each of the three months of the first quarter improved sequentially, continuing the monthly trend since May last year. 

“We are the clear leader in many of our markets, with a highly experienced senior management team, which, we believe, positions us well to take advantage of opportunities to grow and improve our business. We have maintained our focus on driving progress towards our long-term strategic goals.

“Looking ahead, there continues to be a high degree of global macro-economic uncertainty as Covid-19 remains a significant issue and lockdowns have returned in a number of the group's markets. However, and notwithstanding the early stage in the year, the strength of our performance in Q1, and notably in March, has increased confidence in our outlook for the year.”

ii round-up:

Global employment agency Page Group (LSE:PAGE) today reported fee growth of 31% in March, pushing quarterly gross profit up 2% and beating City expectations for a fall of around 7%.

The strength of the quarterly performance has boosted management’s confidence in full-year prospects, with operating profit for the year to the end of December now expected to come in at between £90 million to £100 million, compared to current analyst forecasts in the region of £72 million.

Page Group shares rose by more than 9% in UK trading, leaving them up by more than 50% since late October and just prior to the announcement of vaccine development success. Rivals Hays (LSE:HAS), SThree (LSE:STEM) and Robert Walters (LSE:RWA) are all up by a similar amount.

The strong March performance had added to the monthly sequential improvement seen since May last year during the height of initial global pandemic lockdowns. Record months were achieved in March for group markets such as Germany, Italy, Spain and South East Asia, with overall fees only 2% down from the March pre-pandemic 2019 performance. 

Management is for now unsure as to whether this is the result of pent-up supply and demand, or the beginning of a sustainable trend.

On a regional basis, Asia Pacific saw the biggest gross profit improvement at 15.3% on a currency adjusted basis during the quarter, followed by its biggest profit region at around half of the group total, Europe, the Middle East and Africa with an increase of 3.6%. Both the Americas and the UK remained in negative territory with falls of 4.3% and 11% respectively. 

Page consultants operate across 25 arenas from actuarial to technology companies. Fee earner headcount increased by a net 122 staff year-over-year to 5,267. Company net cash of £136 million was down on the prior quarter’s £166 million but up from Q1 2020’s £83 million. 

ii view:

Page was founded in 1976 and today employs over 6,000 staff in more than 30 countries. Accounting and financial services provided its biggest customer segment in 2020, generating just over a third of gross profit, followed by Legal, Technology, HR and Secretarial at around a quarter. Permanent hires accounted for just over 70% of 2020 profit, temporary hires the balance. It is currently pursuing a strategy to expand and diversify the business by industry sectors, professional disciplines, geography and level of focus. 

For investors, the still Covid-clouded outlook and the difference between pent-up demand and a new sustainable trend need to be remembered. Lower exposure to temporary hires than some rivals could also leave it lagging competitors as economic recovery potentially further unfolds. But momentum in quarterly performance continues to build, with ongoing vaccine programmes also likely to aid looking ahead. An estimated dividend yield following its eventual restart of over 2.5% is also not to be ignored in the current ultra-low interest rate era. For now, while some caution remains sensible, diverse exposure to economic prospects is likely to leave Page on the watch list of many investors. 

Positives: 

• Business sector and geographical diversity
• Cost base reduced

Negatives:

• Covid-clouded outlook
• Suspended dividend payment

The average rating of stock market analysts:

Cautious buy