Immediate prospects still unclear for recruiters

Anyone could have taken an educated guess as to how the recruiters would perform over 2020. It was never going to be the best of years. It may be a more illuminating exercise to ponder the likely strength of recovery in labour markets once the virus abates to a significant degree.

Management at Robert Walters (RWA) takes the view that markets will benefit from the release of pent-up demand once the global economy kicks back into gear. But no one can be sure whether events over the past year constitute an unpleasant one-off effect, or whether they have fundamentally undermined certain sectors of the economy.

The group has taken in-house measures designed to reduce financial exposure to those geographies and employment sectors hardest hit by the pandemic. That translated into a 22 per cent reduction in staff numbers across the board.

No locale was more negatively affected than the UK. Interestingly, and a possible pointer to future labour market trends, the group said activity in some regional areas had been more positive than in London, as companies decamp in favour of lower-cost alternatives.

But it is hard separating the wheat from the chaff when domestic net fee income is down by a third to £66.9m and operating income has pulled back from £11.7m to £1.3m. Group-wide net fee income was slightly better, down 26 per cent at constant currencies, while the proportion derived from its international operations continues to mount. The value of geographic diversification beyond simply tapping into higher-growth economies is evident, as is the mix of revenue streams derived from permanent, contract and interim recruitment markets.

The experience was mirrored at industry rival PageGroup (PAGE), which revealed a 28.1 per cent fall in net fee income, while the transition through to operating profit was every bit as fraught, with the conversion rate falling from 17.1 per cent to 2.8 per cent.

Both recruiters are hostage to macro trends in the global economy, and logic dictates that any recovery in the global jobs market is a likely to be patchy affair.

Further expansion of the US economy’s balance sheet should act as a wider stimulus – at least over the short- to medium-term. And though the UK-EU trade deal has given UK companies and their European counterparts more clarity to underpin their investment decisions, uncertainty lingers in one key area – financial services. Anyone looking to the Asia Pacific region to drive global economic activity should note that the Caixin/Markit services Purchasing Managers’ Index, though still in positive territory, pulled back by 50 basis points to 51.5 for February.

With prospects far from certain, both commercially and clinically, we take a neutral stance on the shares of both recruiters.

Robert Walters - Last IC view: Hold, 400p, 30 Jul 2020. PageGroup - Last IC view: Hold, 383p, 05 Aug 2020