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Recruiter PageGroup reports record quarter as UK profit improves despite Brexit concerns

PageGroup shares have jumped today after reporting a better-than-expected increase in first quarter gross profit
Engineering was one of the best performing sectors in recruitment in the first quarter

UK recruiter PageGroup plc (LON:PAGE) achieved record quarterly profit in the first three months of 2017 but warned of risks arising from Brexit, European elections and Brazil’s ongoing macro-economic challenges.

Shares jumped 7.05% to 475.0p in morning trading. 

Gross profit in the first quarter rose 9.1% to £170.3mln as growth in France and Germany offset declines in  Brazil, Singapore and the financial services division. A later Easter this year also contributed to the growth. 

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In the UK, gross profit was broadly flat at £36.4mln but it marked the company’s best performance for a year despite the uncertainty surrounding Britain’s vote to leave the European Union last June. It compared to a 6.7% drop in gross profit in the fourth quarter. The division accounts for 22% of overall gross profit. 

The group, formerly known as Michael Page International, said candidate and client confidence levels in the UK continued to be affected by Brexit concerns. Technical jobs were the best performing disciplines in the UK. The private sector business, which represented 88% of the UK, saw flat growth. The public sector, accounting for 12% of the UK, declined 2%.

While Brexit weighed on hiring confidence levels, a weaker pound gave overall profit a boost.

Challenging market conditions...

PageGroup continued to experience challenging market conditions in Brazil and Singapore. The financial services sector, particularly in New York, also suffered.

On the upside, the Europe, Middle East and Africa division, which represents 46% of total gross profit, delivered a strong performance. Gross profit rose 27.6% to £78.6mln.

Chief executive Steve Ingham said: “France, having increased fee earner headcount by 17% year-on-year, delivered an excellent quarter, with growth of 26%. Germany continued to grow in double digits.”

Property, construction and engineering jobs drive growth...

Gross profit in permanent placements, which account for 75% of the total, edged up 19.3% to £128mln. Temporary hiring, representing the remaining 25%, achieved 20.8% growth in gross profit to £42.3mln.

Total headcount gained 6% to 6,214 and the strongest performing sectors were property, construction and engineering. 

Ingham added that while the group was pleased with its results, the timing of Easter played a big part in the growth.

“Furthermore, there remain a number of uncertainties as we continue through 2017, including the impact of Brexit in the UK, elections in Europe and Brazil’s ongoing macro-economic challenges,” he said.

“Looking ahead, we will continue to focus on driving profitable growth, while being able to respond quickly to any changes in market conditions.”

Profit beats expectations

Liberum noted that gross profit was 4% ahead of consensus forecast and the underlying improvement was "encouraging" albeit flattered by the timing of Easter. The broker reiterated a 'buy' rating and target price of 415p.

"Despite the macro uncertainties we believe that this strong start to the year should support upgrades to consensus expectation for FY17 of +5% and would therefore expect the shares to react positively to the update," said Liberum analyst Rahim Karim. 

-- Adds share price reaction, broker comment --


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