Recruitment company PageGroup (PAGE) posted a drop in Q1 gross profit as subdued client and candidate confidence and heightened uncertainty weighed on hiring.
The FTSE 250 staffer also warned the Middle East conflict is driving an ‘increasingly uncertain outlook’ for the rest of the year.
So why did the lately-unloved shares rally 2.5% to 136p in early dealings? Well, there was relief that PageGroup’s quarterly update proved less bad than feared. Investors also welcomed news of continued growth in the Americas and Asia Pacific, which helped cushion the blow from tough market conditions in Europe and the UK.
US & Asia shine
For Q1, group gross profit declined by 4.9% to £187 million at constant currency. PageGroup generated constant currency gross profit growth in both Asia Pacific and the Americas.
‘Within these regions, the US and Asia have grown for six and four quarters in a row, respectively,’ explained CEO Nicholas Kirk. Against a soft comparator, Greater China grew 12% amid improving candidate and client confidence.
Unfortunately, PageGroup continued to experience lower levels of candidate and client confidence in Europe. The backdrop is particularly tough in the UK and in France, the company’s second biggest market.
Gross profit in PageGroup’s biggest market, Germany, declined by 7% with activity levels and business sentiment ‘remaining stable’.
In the Middle East, gross profit slumped 12% with client and candidate confidence deteriorating further due to the Iran war. Ominously, PageGroup warned the regional conflict ‘increases the risk of backouts and hiring freezes’.
During the quarter, both permanent and temporary recruitment were down, but permanent outperformed temporary. This was mainly due to the growth seen in the US and Asia, which are predominantly permanent recruitment markets.
Controlling the controllables
Kirk warned: ‘Whilst we have seen signs of a normalisation in trading in some of our markets, the increased geopolitical and macroeconomic risks due to the conflict in the Middle East create a heightened degree of uncertainty in the outlook for the rest of the year.’
He added: ‘Despite this market outlook, we continue to focus on controlling the controllables, invest in innovation and technology, and remain confident in the execution of our strategy.’
We aren’t big fans of the cyclical recruitment sector. Despite its geographically-diversified business, PageGroup is at the mercy of clients’ tightening recruitment budgets in many markets.
And with many professional jobs being ‘eaten’ by AI, PageGroup’s market is shrinking not growing. As such, we would avoid the shares, which have shed more than 75% of their value over the last five years.
Read the press release here: https://www.page.com/investors
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