Interactive Investor

ii view: recruiter PageGroup pares back profit expectations

Geared to the ups and downs of the economy and offering an attractive forecast dividend yield. Buy, sell, or hold?

15th January 2024 15:59

Keith Bowman from interactive investor

Fourth-quarter trading update to 31 December

  • Permanent hire gross profit down 14% to £165 million
  • Temporary hire gross profit up 5% to £72 million
  • Overall gross profit down 9% year-over-year to £237 million

Guidance:

  • Now expects full-year operating profit slightly below its previous forecast of between £125 million and £130 million

Chief executive Nicholas Kirk said:

"We produced a resilient performance in challenging market conditions.

"Looking ahead, macro-economic uncertainty persists. However, we have a highly diversified and adaptable business model, a strong balance sheet, and our cost base is under continuous review and can be adjusted rapidly to match market conditions.”

ii round-up:

Recruitment agency PageGroup (LSE:PAGE) today reported a further fall in quarterly profit as confidence among both jobseeker and corporate hiring customers remains affected by the tough economic backdrop. 

Fourth-quarter profit for permanent hires fell 14% year-over-year to £165 million, more than offsetting a 5% increase in temporary hire related profits. It's forced management to further reduce their full-year 2023 profit estimate to slightly below its previous forecast of £125 million. 

Shares in the FTSE 250 company fell around 2% in UK trading having come into this latest news down 6% over the last month. That’s similar to larger rival Hays (LSE:HAS), which only recently lowered its 2023 profit hopes, and compares to a less than 0.5% retreat for the FTSE 250 index itself.   

Page operates across 25 different client sectors from accountancy to technology companies via its Page Personnel and Michael Page brands.

The Weybridge headquartered company continued to downsize its workforce given the difficult trading environment, axing 224 fee earning personnel during the quarter. That's less than the 310 it cut during the previous quarter, leaving it with total staff of 7,859. 

The recruiter also underlined ongoing investments in innovation and technology with the benefits of supporting staff productivity and enhancing the customer experience. 

Group net cash stood at £90 million as at 31 December, down from £131 million a year ago. Annual results are due on 7 March. 

ii view:

Founded in 1976, PageGroup is today focused on the recruitment of specialist, generally 'white-collar' staff. A total 70% of its quarterly profit came from permanent recruitment hires during this latest quarter with the balance made from temporary hires. Geographically, its EMEA region including France and Germany generates most of its profits at just over half, followed by the Americas and Asia Pacific at around 16% each, and the UK the balance of 12%.  

For investors, the tough economic backdrop which includes heightened borrowing costs is now hindering the confidence of both jobseekers to move employers and corporate customers to hire. Sectors such as technology and banking including companies like Amazon.com Inc (NASDAQ:AMZN) and Citigroup Inc (NYSE:C) have been reducing staff numbers. Costs generally for businesses such as wages remain elevated, while currency movements can affect performance. 

On the upside, Page has the experience of operating within economic downturns previously, and its cost base is flexible with personnel numbers being reduced. Diversity of both underlying client industries and geographical region exists, while net cash continues to be held. 

For now, and while some caution looks sensible given the near-term risk of economic slowdown or recession, a forecast dividend yield of over 5% is likely to help convince income investors to sit tight.

Positives: 

  • Business sector and geographical diversity
  • Flexible cost base

Negatives:

  • Economic outlook uncertainty
  • Currency moves can hinder

The average rating of stock market analysts:

Strong hold

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