Interactive Investor

ii view: recruiter PageGroup flags soft demand but flexible costs

12th July 2023 11:40

by Keith Bowman from interactive investor

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This cyclical FTSE 250 company fell 27% in 2022 and has been on the back foot this year. We assess prospects. 

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Second-quarter trading update to 30 June

  • Permanent hire gross profit down 11.2% to £195.5 million
  • Temporary hire gross profit up 12.1% to £68 million
  • Overall currency adjusted gross profit down 6.5% year-over-year to £263.5 million

Guidance:

  • Continues to expect full-year operating profit of around £137.6 million, down from the prior year’s £196.1 million

Chief executive Nicholas Kirk said:

"The Group delivered a good result in the quarter, especially given the particularly tough Q2 2022 comparator, which is the Group's record quarter.

"Looking forward, there remains a high level of global macro-economic and political uncertainty in the majority of our markets. However, against this backdrop, we continue to see candidate shortages and good levels of vacancies, as well as continued high fee rates.”

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ii round-up:

Recruitment agency PageGroup (LSE:PAGE) today detailed a fall in second-quarter profits, but kept its full-year profit expectation unchanged given its highly flexible cost base. 

Currency adjusted gross profit fell 6.5% to £263.5 million as it battled increasing economic uncertainty and a record prior year comparative. Profits in relation to permanent hires, which account for around three-quarters of overall earnings, fell 11.2% as clients preferred temporary hires given rising interest rates and continued consumer spending pressures.      

Shares in the FTSE 250 company rose around 2% in UK trading having come into this latest update down 8% year-to-date. That’s similar to larger rival Hays (LSE:HAS), although better than the 27% fall for profit warning hit smaller competitor Robert Walters (LSE:RWA)

Operating profit for the full-year is still expected by Page to broadly match the current consensus City estimate of £137.6 million - down from 2022’s £196.1 million.  

Fee earning staff numbers fell 255 to 6,385 during the quarter and followed reductions made in the prior two quarters. 

Robust demand in Europe and Germany came against falls in the UK, US, and China. Page retained a net cash holding of £96 million, down from £136 million held in the second quarter of last year

First-half results are scheduled for 7 August. 

ii view:

Started in 1976 and headquartered in Weybridge, Surrey, PageGroup today operates across 25 different client sectors from actuarial to technology companies. Its brands include both Page Personnel and Michael Page. Europe, the Middle East and Africa (EMEA) generate its biggest slug of sales at just over half, with the balance relatively evenly split between the UK, Asia Pacific, and the Americas. 

For investors, the tough economic backdrop for its customers cannot be forgotten. Technology companies such as Microsoft have been cutting staff, costs generally for businesses remain a focus including the wage bill, China’s economic recovery from the pandemic appears to have been short lived while a relatively new chief executive now heads the recruiter. 

On the upside, costs remain a management focus. Page's cost base is pretty flexible and it has experience of operating within economic downturns. There's diversity of both underlying client industries and geographical regions, net cash on the balance sheet, and an historic and forecast dividend yield of 3.5%. 

For now, and while a good dose of caution looks sensible, a consensus analyst estimate of fair value at over 530p per share should help generate optimism for the long term.  

Positives: 

  • Business sector and geographical diversity
  • Flexible cost base

Negatives:

  • Economic outlook uncertainty
  • Reduced net cash

The average rating of stock market analysts:

Strong hold

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