It seems like not a day passes without another story involving the UK labour market. Whether it’s public sector strikes, redundancies or skills gaps, the employment sector is headline making.
Front and centre of the market is the Surrey-based, FTSE250-listed recruitment specialist, Page Group LON:PAGE. Founded in 1976 by Michael Page as a small recruitment consultancy specialising in accountancy and finance, Page Group is now one of the world’s top-20 recruiters with 9,000 employees and representations in over 35 countries worldwide.
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Given labour shortages experienced since the UK left the EU and subsequent to the Covid-19 business interruptions, Page has been in the right place at the right time, and in 2022 reported a gross profit of over GBP1bn.
Page opened the week (18th September) at 412.2p, a -10% fall over the year-to-date but was up 9.4% over one-year, with the company valued at the start of the week at GBP1.4bn and its shares ranging between 356.80p and 501.50p.Lately the Page juggernaut has slowed down somewhat. In its last results, for 1H23 (published at the beginning of last month), although revenues were up 5.8% to GBP1.03bn, gross profit fell by 2.2% year-on-year to GBP526.8m. But the big hit was in the recruiter’s operating profit, which crumbled 44.6% to GBP63.9m. Profit-before-tax also fell over 44% to GBP63.3m
This damaged both basic and diluted EPS, falling by 46.9% and 46.7% respectively to 13.6p, when compared to the corresponding period of 2022. To be fair, 2022 given the problems outlined above and following a thumping gross profit, the bar was set high as the economy started to move forward after the twin shocks of Covid and Brexit.
Page Group still in dividend territory
Nevertheless, Page still continues to reward its long-term supporters with the directors announcing an improved 5.13p interim dividend per share, up 4.5%, although to compensate the board cut its special dividend by 40.6% to 15.87p. The company also reduced its own workforce by 5%. Do recruitment consultants have specialist agencies that hire them into other recruiters?
The poorer performance was down to Page seeing its conversion rate – the percentage of successful candidates hired compared to the number of vacancies available over a period of time – falling to 12.1%, a big drop of 21.4% from the same period in 2022. The company’s salesmen were also earning less, down from GBP82,800 to GBP79,700.
To cover its shortfalls, Page nibbled into its pile of cash, with net cash declining 28% year-on-year to GBP97.9m. Management was bullish reiterating its profit forecast of GBP137.6m, albeit cut in January from GBP204m.
Page, as a business is very sensitive to the health of the economy. The bounce-back following Covid saw a lot of companies hit a crisis in staffing as a lot of its Working From Home and furloughed employees didn’t return to their desks, and generally in the period right after the pandemic many people opted to become economically inactive, dropping out of the market.
Changing labour market
Other factors including employees taking early retirement, going into or back into full-time education and long-term illness led to vacancies outstripping workers in 2022, which was a boomtime for Page Group and its peers.
However, three Prime Ministers later, a disastrous and short-lived handbrake turn in economic direction, a War in Ukraine, rising inflation and interest rates, and a cost-of-living crisis causing workers to demand more pay (and go on protracted strikes in the public sector) has radically changed the picture in the UK in one year.
If you’d have canvassed business at the beginning of last year, the underlying theme was that the first green shoots of recovery were staring to return to the economy and business owners were feeling a little optimistic.
After a brutal year and a Summer of Discontent, the optics have changed, and business owners are feeling a lot more pessimism. Whereas before businesses were wondering where they were going to get adequately-skilled workers from, now it’s how to manage and afford the workers they have and whether – should there be no greater clarity in economic recovery – they need to cut their overheads to maintain the sustainability of their company.
As mentioned above, Page itself has cut its headcount. Parts of Page’s business might benefit from this uncertainty, as companies freeze permanent hiring decisions, and opt towards filling the gaps with temporary cover, but then it becomes a decision from the other side; do job candidates want a temporary solution, when a permanent contract offers more stability in an opaque economic environment?
Artificial Intelligence is a double-edged sword for Page. If we are to believe the reports that AI will have a seismic effect on the employment world, replacing a lot of jobs, meaning that there will be less ‘situations vacant’. However, (and Page is integrating AI capability to its operations) AI can help Page by efficiently and quickly matching up candidate databases with positions that their clients need to fill, as well as allowing Page to pre-emptively find candidates that fit a client’s profile, something especially useful in rapid growth sectors like IT, meditech and pharma, and technology where many companies are in an early stage.
A lot of the recruiter’s time is spent combing through CVs, conducting initial interviews and if this can be taken on by AI, Page could cut its headcount even more and focus on profitability and retaining its higher fee earners,
Room to improve
Bridgewise, the artificial intelligence stock analysis platform doesn’t care much for Page, stating: “At a high level, the metrics from Page Group’s Q2 financial report release were demonstrably negative. Their negative growth, and value factors indicate that the company is finding it increasingly difficult to produce impressive numbers. These results suggest a challenging future for the stock. As such, Page received an overall score of 60 and an ‘Underperform’ recommendation.”
However, Bridgewise’s human competitors hold a contrary view, with four Wall Street analysts issuing 12-month price targets for Page’s shares with forecasts ranging from GBP410p to GBP610p with a median forecast of GBP555p within the next year, suggesting a possible upside of 35% from the stock’s current price.
Of the analysts, Royal Bank of Canada rated Page as ‘Outperform’ in June with a target price of 610p and Numis rating the recruiter as a ‘Buy’ with a target price of 600p. Although Barclays lowered its target from 700p to 600p last October, it still thinks you should hold on to the stock.
Jefferies Financial Group was a bit closer to Bridgewise’s opinion and gave page an ‘Underperform’ rating, but all the same raised its target from 400p to 410p in March.
There’s two ways this could go. If the current uncertainty remains, or even downturns, it’s bad news for Page as companies reset from ‘Hire’ mode to ‘Fire’ mode as their margins and profits pinch – no CEO want to be using the services of Page involuntarily because they have failed at their company and have received a P45 as opposed to a bonus.
Page Group as an economic barometer
However, Page has been in the game for over 40 years and ridden out worse recessions than we are experiencing now. It has a strong brand, global reach and a profound understanding of the recruitment market. New markets are emerging, especially in the Americas, which like Africa, Page has hardly touched. Its ongoing investment in technology and innovation puts it ahead of the competition, and from the economic morass a number of high-growth industries are emerging: pharmaceuticals, biotechnology, the green sector, technology and healthcare, and in the coming decade there will be significant human capital demand in these areas.
Just as Michael Page hit the ‘Loadsamoney’ generation in the 1980s when the City and Financial Services were experiencing a boom, so too will new industries experience a boom in the next decade. The company is also diversifying and exploring value-add services including career mentoring and talent consulting.
Page is intimately linked with the health and growth of the UK and global economy. Investing in this stock, or not, is your bet on where you think the economy is going in the medium-term, recruiters are often the outriders of economic recovery.
