PageGroup profits slump as recruitment market remains challenging

It’s been a couple of months since PageGroup (PAGE) delivered a profit warning to the market, but there are few indicators that the recruitment market has become any less challenging. The group’s full-year figures, in common with those of industry peers, note a slowdown in permanent placements and “lower levels of candidate and client confidence”.

That’s to be expected given the wider impact of increased borrowing costs in the global economy, although chief executive Nicholas Kirk said that the group experienced “good activity levels through most of the year”. Whether this indicates that we could witness a rapid turnaround once interest rates begin to retrace is difficult to say, but areas of the labour market are still experiencing structural shortfalls, so it might indeed revert to a seller’s market in short order.

PageGroup revealed a 39.4 per cent drop in adjusted operating profits to £119mn, while operating profit as a percentage of gross profit came in at 11.8 per cent against 18.2 per cent in 2022. All regions experienced double-digit declines in gross profit apart from the large EMEA (Europe, the Middle East and Africa) segment, which recorded a 2 per cent uptick.

Following a marked expansionary period, the fee-earner headcount was reduced by 15.7 per cent, although those remaining attained a record level of pro-rata gross profits.

The group’s solid balance sheet provides optionality even when markets aren’t heading in the right direction. At 18 times forward consensus earnings, the shares are more expensive than peers such as Hays (HAYS) or Robert Walters (RWS), so we retain our neutral rating. However, investors will note that the effective dividend yield moves up to 7 per cent once the 15.87p special is factored into the equation. Hold.

Last IC view: Hold, 447p, 7 Aug 2023