MIDAS SHARE TIPS: Recruitment agencies face challenging times

Headhunters are having a hard time, according to three British listed recruitment agencies.

Hays, Page Group and Robert Walters have told investors that elections and macroeconomic volatility are negatively impacting employment and causing their recruiters to lose revenue from placing clients in certain roles.

So what should investors do? On the one hand, recruitment stocks are low with the possibility of a bargain, but on the other hand, it could be a while yet. Midas looks at the prospects for each of the three companies.

Hay

Hays Group, which released a fourth-quarter trading report on July 11, described market conditions as “challenging.”

General Manager Dirk Hahn indicated that there is ‘low confidence’ and that quarterly group rates will fall by 15 percent compared to last year.

Hays operates in several global markets including Germany, the UK, Australia and New Zealand, and costs fell in every geography with a notable 22 per cent drop in Oz. Full-year profits are forecast to be almost 50 per cent lower than in 2023.

The costs of placing staff in permanent positions fell the most.

While some of these have been offset by revenue from placing temporary staff to fill those positions, this has not been the case this quarter. Costs for placing temporary staff have fallen by 20 percent compared to 12 percent for temporary positions.

Hahn is pessimistic, but focused on cost-cutting and the longer term. ‘Given the ongoing global uncertainties, we expect our key markets to remain challenging in the short term,’ he says. He has cut £60m of costs from the business this year and is confident Hays can ‘deliver substantial profit growth once our end markets recover’.

Traded on: Main market Ticker symbol: HAS Contact: haysplc.com 020 3978 2520

Page Group

After a second-quarter trading update on July 9, it is also fond of the word “challenging”. Chief executive Nicholas Kirk said “challenging market conditions” and a “softening in activity levels” had pushed profits down 12 percent, excluding currency fluctuations.

Page Group is also broadly diversified geographically, with the UK accounting for just 12 percent of profits, Asia Pacific for 14 percent, the Americas for 18 percent and Europe for 56 percent, with a preference for France and Germany.

The company’s updated results said all of these markets were struggling with “little sign of improvement”, although optimists may point to better news from Brazil and India, where profits rose.

While Kirk has reduced staffing levels somewhat, it’s a balancing act to keep enough staff ready to be on the front foot if conditions improve. He plans to keep fee earners “at their existing level” so they can benefit from a turnaround if it comes.

“We have a highly diversified and adaptable business model, a very experienced management team, a strong balance sheet and our cost base is constantly being evaluated,” he says.

Traded on: Main market Ticker symbol: PAGE Contact: pagina.com 0207 831 2000

Robert Walters

By the time we received Robert Walters’ trading update on July 15, only an optimist would be surprised that the group found the market “challenging.”

Chief executive Toby Fowlston says “macroeconomic turbulence and political uncertainty” is “hampering client and candidate confidence in certain regions”. He is also looking to the long term.

“Our near-term planning now assumes that any material improvement in confidence will be gradual and unlikely to occur before 2025,” he added.

Its workforce fell 13 percent last year and Fowlston says the company is selective about replacing workers who leave. Unlike its rivals, Walters has done well in Asia, with higher rates for China and Japan.

Traded on: Main market Ticker symbol: RWA Contact: robertwalters.co.uk 0207 509 8034

Fairly priced or undervalued?

As you might expect with this gloomy news, the recruitment agencies don’t seem expensive and the dividend yields can be tasty too.

Robert Walters shares have fallen 25 per cent from five years ago, to 380p, and are now yielding almost seven per cent.

Hays shares are down nearly 40 percent from five years ago, and the company expects a dividend yield of 3.3 percent this year.

Page Group shares are down nearly nine percent from five years ago.

Analysts are divided on which stocks are the best choice. Investec’s Tom Callan likes Robert Walters because of its better geographical positioning, while RBC thinks Page is making the right decision by not cutting too much to be ready when the market turns and buying the stock, while analysts at UBS and Barclays prefer Hays.

Whatever choice you make, these figures show that you will have to wait a while for improvements from any recruiter. There are still many global developments to take place before the market picks up.

If you already own shares in any of these companies, it is certainly advisable to hold on to them for better times. But only optimists who want to invest for the long term should buy at this level.