- Conditions still difficult one year after a profit warning
- UK market is still very soft, and Europe gets worse in late 2024
- Temporary hires show ongoing weakness, as well as permanent ones
- Recruiter itself continues to cut jobs
“Shares in recruitment specialist PageGroup are falling to their lowest mark since May 2020 as a slower-than-expected recovery in jobs markets around the world, particularly in the UK and Germany, obliges management to suggest profits for 2024 will come in at the low end of the expected range,” says AJ Bell investment director Russ Mould. “China is a further source of weakness, and only the USA is showing any real signs of positive momentum as investors now wait to see what effect October’s Budget will start to have upon the trend here in the UK.
“It can be argued these figures probably reflect budget decisions taken several months back, given the lengthy lead times involved in headcount changes by employers. This fourth-quarter update for 2024, therefore, will not yet capture the impact upon companies’ headcount and hiring plans.
“Even so, investors will now look to trading updates from peers Robert Walters on Tuesday and Hays on Wednesday. A trio of weak statements could magnify calls for further interest rate cuts to boost the economy, but the sticky nature of inflation and foment in the UK gilt market both leave the Bank of England with an awkward juggling act. Markets still expect two one quarter-point interest rate cuts from the Monetary Policy Committee in 2025, one in March and one in November, but that is down from the consensus forecast of four such decreases that prevailed in early autumn.
“If there is any good news in the latest quarterly update, which covers the final three months of 2024, it is that the rate of decline in gross profit, or net fee income, did not get any worse at PageGroup. However, that is relatively cold comfort after seven consecutive year-on-year decreases.
Source: Company accounts
“Moreover, PageGroup boss Nicholas Kirk flagged weak conversion of interviews to accepted offers. This may reflect caution among employers, as they assess their cost base for the year ahead, but also among workers, who could take the view that they are better off staying put since a move could leave them exposed if things go wrong at their new job, given the old saying, ‘last in, first out.’
“France and Germany’s jobs markets have softened further, and the UK and China have stayed weak.
Source: Company accounts
“It will be of particular concern to the company’s shareholders, and perhaps economists and policymakers, that temporary hires are coming under further pressure. Usually, employers will focus on full-time hires if they are feeling confident and temporary ones if they have less visibility, so retrenchment in part-time posts is a potentially troubling sign.
Source: Company accounts
“PageGroup itself is responding to these tougher times. A 2% quarter-on-quarter cut in fee earner headcount takes the total to 5,370, the lowest mark since the pandemic-blighted first quarter of 2021 and 8% below the level of a year ago.
Source: Company accounts
“Earnings estimates continue to slide, however, and this is weighing heavily on the share price.
“After last January’s trading alert, analysts had pencilled in operating profit for 2024 of £129 million, a marginal increase on 2023’s £119 million. That forecast had seeped lower to £90 million by the time of April’s lukewarm first-quarter update and Mr Kirk then steered expectations toward £60 million in July alongside the second-quarter update and lower still, to £58 million, in October’s third-quarter announcement.
“The CEO now expects operating profit to come in toward the low end of the consensus profit forecast range of £49 million to £58.5 million, even if that includes a £5 million in closure and restructuring costs.”
Source: Company accounts, Marketscreener. 2024E based on bottom end of management guided range.
