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Recruiters a mixed bag since Brexit vote

Recruiters a mixed bag since Brexit vote

Recruiters were among the first to feel the pain following the unexpected vote to leave the European Union last year. Lower economic confidence can be damaging to these businesses as it makes people less willing to move jobs, depriving recruiters of the 'churn' needed to generate placements and fees. However, recruiters' performance post-referendum has been mixed, with some shrugging off the effects with seeming ease and others struggling in the UK.

Robert Walters has recorded growth in permanent, middle management roles in areas such as investment banking, risk and compliance”

One of the more surprising set of results was from Robert Walters (RWA), which reported growth in its UK business due to a "notable upturn" in financial services recruitment in London. This flew in the face of conventional wisdom, which is that recruiters with a skew towards lower-paid and temporary recruitment are generally more robust in the face of any economic uncertainty. Robert Walters has recorded growth in permanent, middle management roles in areas such as investment banking, risk and compliance. This was bolstered by growth in resource solutions - offering outsourced HR services to clients - which won clients during the year. Analyst upgrades to net fee income forecasts for the year have followed.

Robert Walters' strong UK performance led investors to surmise growth in UK financial services might also have benefited rival PageGroup (PAGE), with a bump in the latter's shares. However, UK trading was flat overall during the first three months of the year. It was saved by a better performance in continental Europe - France and Germany, in particular - driving a consensus-beating 9 per cent rise in gross profits.

However, first-quarter news from the sector has not been all good. Gattaca (GATC) issued a profit warning for the year ending July 2017, sending the shares down 8 per cent on the day of the announcement. Management at the blue-collar recruitment specialist said it expects profits to be between 10 and 15 per cent lower than its prior expectations due to a delay in hiring decisions.



Hays ' (HAS) net fee income may have reached an all-time high during the period, growing 10 per cent in like-for-like terms, but this was again driven by a stronger showing in continental Europe and rest-of-the-world segments. The UK business continued to struggle. It slowed its decline from the 10 per cent fall in net fees seen at the half-year, but still fell 4 per cent.

Analysts say recruiters have demonstrated a reasonable degree of resilience for a number of reasons. The first is that while corporate confidence has faltered since the referendum, making them less likely to hire, consumer confidence has so far held up. The impact of the referendum has also been localised, allowing recruiters to look to their international businesses to drive growth while the UK has tried to find its footing. However, it is worth noting data from GfK, which showed that UK consumer confidence slipped during October and November and has stayed at or around -6 on the index into March so far this year.

By contrast, analysts say growth in continental Europe has been strong due to GDP growth, combined with the recruitment market undergoing structural changes and becoming more mature. Steve Woolf, analyst at Numis, said: "Large areas like Germany have really started to get going and gain some momentum."

He added that recruiters' UK businesses suffered due to uncertainty stemming from successive elections and referendums, as companies are more likely to approach hiring with more caution during times of uncertainty. However, he noted that the latest trading updates may show indications that companies are simply becoming comfortable with uncertainty. "The signs are that the private sector has begun to become more optimistic and shows signs of getting on with it," he said.


Our recent tip Empresaria (EMR) shows we think there is value to be had in the UK-listed recruiters, but the sector is a mixed bag. Results from Robert Walters indicate there may be a resurgence in the white-collar financial services sector, but it is still early days. We believe recruiters with a broad footprint across sectors and geographies are the best bet for investors, until Brexit negotiations are further along.

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By Tom Dines,
20 April 2017

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