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Robert Walters has upside in store

The recruiter's latest update has prompted analysts to upgrade their earnings forecasts
December 13, 2017

Robert Walters (RWA) has upgraded its profit expectations for the fourth time this year, citing strong trading across all its regions during September and October. That included the crucial UK recruitment market – which accounts for almost a third if its net fee income. Management reckons 2017 profits will be materially ahead of market expectations, while the Bloomberg consensus earnings forecast increased by 1.9p to 35.7p a share on the day of the update.

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Although net fee income has been better than expected across the sectors, deputy chief executive Giles Daubeney said there was a real shortage of IT candidates globally, particularly in data analysis and cyber security disciplines. However, he said financial accounting had been the fastest growth area so far this year. Despite increased investment in headcount, faster net fee income growth meant the group’s conversion rate – the ratio of operating profit to gross profit commonly used to measure recruiter performance – also increased. Analysts are forecasting a rate of 11.5 per cent at the year-end, up from 9.4 per cent year on year. 

Potential investors should recognise that although an employer’s willingness to hire is important in growing net fee income, candidate churn is the real kicker. For that to happen, candidates must be confident enough to move jobs. Mr Daubeney believes that this still applies to the UK jobs market, despite Brexit-linked uncertainties and stagnating real wage growth – the latter dynamic, however, remains a cause for concern.   

The group's performance contrasts with some other UK-listed recruiters, partly because it doesn’t perform any public sector hiring. Gattaca (GATC) has come unstuck this year, reporting a 4 per cent decline in like-for-like net fee income, citing Brexit and election-related uncertainty as the predictable culprits. Pagegroup (PAGE) also blamed these factors for a marked 7.6 per cent deterioration in its domestic net fee income in the third quarter. It could be argued that the Robert Walters' outsourcing division, which is outstripping the growth rate of its core recruitment business, has helped it gain an advantage over competitors. This has certainly held true so far this quarter, according to management.