ii view: recruiter PageGroup trims annual profit forecast

Third-quarter trading update to 30 September

• Permanent hire gross profit down 15% to £175 million
• Temporary hire gross profit up 4.3% to £67 million
• Overall gross profit down 10% year-over-year to £242 million

Guidance:

• Now expects full-year operating profit of between £125 million and £130 million, down from a previous £137.6 million

Chief executive Nicholas Kirk said:

“Candidate shortages remain acute and are supportive of continued high fee rates. Salary levels remain elevated, albeit the salary increases offered to candidates reduced compared to Q3 2022.

"Looking ahead, due to a slower end to the quarter, there is a heightened degree of uncertainty in the short term. 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.”

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ii round-up:

Recruitment agency PageGroup (LSE:PAGE) today detailed a fall in quarterly profit due to continued customer reluctance to take on new full-time staff in uncertain economic times, underpinning a further cut to its full-year profit estimate. 

Profit for permanent hires fell 15%, taking overall gross profit for the third quarter down 10% and despite a 4.3% gain in temporary hire earnings. A slow September and ongoing outlook uncertainty saw management further lowering its annual operating profit estimate to between £125 million and £130 million from a previous £137 million. That’s down from £196.1 million in 2022.

Shares in the FTSE 250 company fell around 5% in UK trading having come into this latest update down by over a tenth year-to-date. That’s similar to larger rival Hays (LSE:HAS) but better than a near one-third fall for smaller peer Robert Walters (LSE:RWA). 

PageGroup operates across 25 different client sectors from accountancy to technology companies. Its brands include both Page Personnel and Michael Page.

Geographically, a resilient performance for its biggest region, Europe, the Middle East, and Africa (EMEA), accounting for just over half of all profits, helped counter double-digit falls across the Americas, Asia Pacific and the UK. 

Page continued to underline its adjustable cost base, cutting fee earning staff by 310 during the period to a total 6,075. Group net cash held of £136 million was up from £96 million during the previous second quarter. 

A fourth-quarter trading update is scheduled for 15 January. 

ii view:

Started in 1976 and headquartered in Weybridge, Surrey, PageGroup is today focused on the recruitment of specialist, generally 'white-collar' staff. Close to three-quarters of its fees come from permanent recruitment hires with the balance from temporary hires, although the proportion does vary depending on the ups and downs of the economic cycle. 

For investors, the uncertain economic backdrop for its corporate customers and the impact it has on their confidence to hire new staff cannot be forgotten. Technology companies such as Microsoft Corp (NASDAQ:MSFT) and Meta Platforms Inc Class A (NASDAQ:META) have been reducing their workforce, costs generally for businesses remain a focus including the wage bill, while a relatively new chief executive now heads the recruiter. 

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More favourably, costs remain a management focus, with its expense base flexible and Page having the experience of operating within economic downturns previously. Diversity of both underlying client industries and geographical region exists, it enjoys a net cash position, while the shares sit on a forecast dividend yield of over 4%. 

PageGroup shares are historically volatile, and any disruption to economic growth can impact demand for staff. While not for the fainthearted, the company appears well placed for when the cycle turns, and a consensus analyst estimate of fair value in excess of 500p per share implies optimism for the longer term.

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