Interactive Investor

Recruiters enjoy purple patch as global economies rebuild

14th April 2021 13:47

Graeme Evans from interactive investor

Three stocks show confidence with forecast upgrades.

Recruitment firms continue to paint an encouraging picture on the rebuild of the global economy after Robert Walters (LSE:RWA) followed Hays (LSE:HAS) and PageGroup (LSE:PAGE) by upgrading forecasts.

FTSE All-Share stock Robert Walters rose 6% today, taking gains for this year to more than 40%, as it revealed further signs of an uptick in its hiring activity. This includes in the UK, where stronger client and candidate confidence has been particularly noticeable in the capital and across the legal and technology disciplines.

Gross profit still fell 12% to £77.3 million in the quarter to 31 March, but this is much better than the preceding three quarters after the figure declined as much 33% last summer. The company's offices in New Zealand, France, Spain and mainland China even saw a return to growth in the period.

Today's statement from Robert Walters is the latest upbeat insight into business confidence after similarly strong updates from fellow London-listed recruitment firms Page Group and Hays on Friday and yesterday respectively.

FTSE 250-listed Page said there had been a big improvement in activity in March, but admitted it was still too early to tell whether this is the beginning of a sustainable trend or just the release of pent-up demand.

Page's bullish first-quarter assessment helped its shares to rise 10% on the day of its update, with the stock now about a fifth higher than the start of 2021.

The improving momentum at Hays means full-year profits for the year to June will be at least  £85 million, exceeding City forecasts for nearer to £61 million after a strong March result.

While the profits figure is still down on last year’s operating profit of £135 million, there was encouragement for investors in the robust trading performance in Germany, which has been one of the European nations worst affected by Covid-19 this year.

Hays generates a quarter of its overall fees in Germany, but good sequential improvement through the quarter meant fees in the country were down by just 5%. This compared with 14% in the UK and Ireland and 10% for the business overall.

In February, Hays signalled its intention to make a full-year dividend payment based on three times earnings cover with annual results in August. It also identified £150 million of surplus capital it intends to return to shareholders via a two-stage special dividend starting with the award of £100 million at the full-year results.

The shares are now trading at 166.7p — the highest level since before the pandemic — but analysts at UBS believe there's potential to reach 195p after upgrading their forecasts based on yesterday's strong update.

They expect Hays to step up investment in rebuilding its headcount, but even including this outlay UBS still sees room for 2022 underlying earnings of £155 million, compared with the current City consensus for a figure closer to £147 million.

Jefferies has a price target of 173p, noting that some tailwinds are likely to reverse in the next financial year. These include the non-recurrence of low holiday activity and the record hours per temporary worker.

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