ii view: tame response to PageGroup's record breaking Q3

A rapidly adjustable cost base and an estimated future dividend yield of over 4.5%. Buy, sell, or hold?

Third-quarter trading update to 30 September

• Currency adjusted gross profit up 14% year-over-year to £270.5 million
• Net cash held of £186 million, up from £135 million in the prior quarter

Chief executive Steve Ingham said:

“We delivered a good broad-based performance across the majority of our geographies, disciplines and brands. We exited the quarter strongly, delivering our third month of gross profit in excess of £100 million, albeit aided by the strengthening of the Dollar.”

"Looking forward, there remains a high level of global macro-economic and political uncertainty, particularly regarding increasing inflation in the majority of our markets. However, given our highly diversified and adaptable business model, with a cost base that can be adjusted rapidly, we believe we are well-placed to progress towards our vision for the Group to be the leading specialist recruiter in each of the markets in which we operate.”

ii round-up:

Global employment agency PageGroup (LSE:PAGE) today reported growth in third-quarter profit which marginally beat City forecasts, with full-year operating profit expected to be in line with current forecasts at £204 million. 

• Read about how to: Open a Trading Account | How to start Trading Stocks | Top UK shares

Gross profit for the quarter to the end of September rose by 14% compared to the third quarter of 2021, ahead of analyst expectations for nearer to 12%, and aided by record performances in nine countries despite the typically slower summer months.

Shares for FTSE 250 company Page rose by around 1% in late morning UK trading, having come into this latest update down by just over two-fifths year-to-date. Shares for larger competitor Hays (LSE:HAS) have fallen by just under a third in 2022, similar to the FTSE 250 index. 

Page operates across 25 different client sectors from actuarial to technology companies. Profit growth of 22% for its biggest region of Europe and Africa, accounting for almost a half of overall profit, included record growth of 29% for Germany. 

Profit growth in the Americas, its second biggest region at around a fifth of profits, grew by 18% on a currency adjusted basis, aided by gains of 14% in the USA and 18% in Mexico.  

Performance at its Asia Pacific business continued to be hindered by Chinese Covid lockdowns, with overall gross profit falling 4% year-over-year. A profit decline of a quarter in mainland China was partly countered by gains across Southeast Asia, India and Australia. Despite a hit from the Queen’s funeral, gross profit in the UK rose by almost 10%. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares following the update, flagging an estimated fair value target price of 510p per share. A fourth-quarter update is scheduled for 11 January.

ii view:

Started in 1976 and headquartered in Weybridge, Surrey, PageGroup today employs just over 7,000 fee earning staff, up from 6,700 in the previous quarter, with its brands including both Page Personnel and Michael Page. Around three-quarters of its profit comes from permanent hires with the rest coming from temporary staff. 

• The 50% Club: bombed-out cyclical stocks to own when the market turns
• Insider: these three shares are too cheap say company chiefs
• 10 dividend shares to protect your portfolio from the weak pound

It is currently pursuing a strategy to expand and diversify the business by industry sectors, professional disciplines and geographies. It sees its five high potential markets as Germany, Greater China, Latin America, Southeast Asia and the USA, which currently account for around two-fifths of overall profit. 

For investors, economic uncertainty and a cocktail of rising interest rates and costs for businesses generally could see its corporate customers become more reluctant to hire. Continued pandemic disruption for its Greater China business persists, while the pending departure of its chief executive over the last 16 years warrants some consideration.  

More favourably, a third month of gross profit of more than £100 million suggests a continuing strong performance. Diversity in both client sectors and geographical regions is enjoyed, while the FTSE 250 company’s cost base remains flexible, with Page having the experience of operating through previous economic downturns. 

On balance, and while some caution remains sensible, an estimated future dividend yield of over 4.5% may at least offer attraction to income oriented investors. 

Positives: 

• Business sector and geographical diversity
• Flexible cost base

Negatives:

• Economic outlook uncertainty
• Pending departure of experienced CEO

The average rating of stock market analysts:

Buy