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Pagegroup overcomes subdued UK market to put in a strong finish to the year

Did someone mention Brexit? Fourth-quarter profit in France: +28%; Germany +14%; UK -2.8%
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The trading update proved just the job for Pagegroup shareholders

Better than expected fourth-quarter profits had investors piling into the shares of recruitment firm Pagegroup PLC (LON:PAGE) in early trading.

Full-year operating profit is expected to be ahead of the current market consensus of £155mln, but within the range of current market forecasts, the company said.

READ: PageGroup reports record second quarter profits even as Brexit weighs on UK hiring

Group gross profit of £182.4mln was up 13.8% on a constant currency (CC) basis from the year before and was 2.5% ahead of the consensus forecast. On an actual currencies basis, the rise was 11.7%.

The UK let the side down a bit, with a 2.8% decline in gross profit, as the economic environment took its toll.

Europe, the Middle East and Africa (EMEA) saw a 19.3% increase in gross profit on a CC basis while Asia Pacific grew 14.9% and the Americas grew 18.8%.

On a CC basis, the group saw a 13.6% improvement in gross profit from placing permanent staff and a 14.4% hike from placing temporary staff.

For the full year, gross profit was up 9.9% on 2016 on a CC basis, despite the UK business registering a 3.8% decline.

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

"In the quarter, Continental Europe, Asia and the Americas delivered strong performances and we saw improvements and a return to growth in Australia, Brazil and Singapore. However, the UK continued to experience challenging market conditions, with the macro environment impacting some clients and senior candidates,” said Steve Ingham, the chief executive officer of Pagegroup.

"Our strategy of continued investment in our five large, high potential markets of Greater China, Germany, Latin America, South East Asia and the US resulted in combined fourth-quarter growth, ahead of the group average, at +18%. There were some exceptional individual performances in this strategic category, with the US +21% and Greater China +15%, driven by Mainland China +23%.

“In Germany, where we continue to invest in the temporary and contracting markets, growth improved from the third quarter, from +9% to +14%. Latin America delivered a record quarter, up 19%, with all countries delivering double-digit growth, including a return to growth in Brazil, up +14%. South East Asia grew +27% with Singapore up +33%, and our newest country, Thailand, profitable and performing well,” Ingham added.

The group said cash generation in the quarter was strong and it ended the year with net cash of around £91mln after splashing out £52.3mln on the interim and special dividends.


"Looking forward, we remain cautious in several markets as we enter 2018: primarily in the UK, where we will continue to focus on protecting margins whilst investing in structural opportunities; in Australia, where we have invested in headcount and a new office in Canberra; and in Brazil, which remains challenging, despite a stronger performance in the fourth quarter; however, we will continue to invest in our Large High Potential Markets, as well as in markets with favourable trading conditions, both existing and new markets, such as India and the Nikkei market in Japan. We will, as always, continue to focus on driving profitable growth while being able to respond quickly to changes in market conditions,” Ingham said.

Broker Liberum said that relative to its forecasts the main source of out-performance was in EMEA, “with Continental Europe performing extremely well – a trend which is consistent with recent comments from its peers”.

“Specifically we would highlight that France, the group’s second largest country, grew at an impressive 28% y/y in the quarter,” Liberum said.

The broker is expecting upgrades of 2-3% to the consensus forecast for earnings before interest and tax.

“We would also note that cash conversion performed well with net cash at the end of the period of £91m, ahead of our forecast of £80m and should support a healthy increase in the final dividend and robust special dividend in FY18. Although the company hasn’t provided guidance for FY18 we would note the unusually large increase in headcount in 4Q, up 4% q/q which points to the business’ confidence in the outlook for 2018,” said Liberum analyst, Rahim Karim.

“With gross profit and underlying cash conversion better than forecast, the 4Q trading update was positive. Although management have refrained from providing guidance for FY17, given growth in headcount during the quarter it would appear that generally, the outlook is a positive one,” said Liberum, as it reiterated its 'hold' recommendation and nudged up its target price by 10p to 515p.

The broker has increased its fiscal 2018 earnings before interest and tax (EBIT) forecast by 5%.

“The UK business delivered a decline of 2.8% y/y – broadly in line with our expectations – with Page Personal declining 2% and Michael Page falling 3%. Perhaps encouragingly we would note that private sector fees grew 2% y/y during the quarter, offset by a 10% decline in the public sector. Constant currency growth of 18.8% y/y in the Americas was a strong result, with all regions performing well,” the broker said.

“Whilst perhaps too early to call the bottom of the market, we are encouraged by the strong performance in Brazil – which represents around 2% of the group – up 14% y/y,” it added.

UBS hailed a strong finish to the year and said growth of 13.8% in gross profit was ahead of its forecast of 9.5%.

“We think the strong finish to the year-end should see low single-digit upgrades to FY18 estimates,” the finance house said.

Shares in Pagegroup were up 9.2% at 514p.  

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