- 2023 operating profit to disappoint
- Client and candidate confidence weakening
- Net cash on balance sheet offers comfort
Shares in PageGroup (PAGE) weakened 2.5% to 445p after the staffing specialist warned profits for the 2023 calendar year would disappoint with low levels of client and candidate confidence delaying the recruitment process, particularly in the permanent jobs market.
Judging by the limited share price decline, PageGroup’s earnings alert, which accompanied news of a fall in fourth quarter profits, had been largely anticipated by investors following a recent warning from rival FTSE 250 recruiter Hays (HAS).
GROSS PROFITS PLUNGE
PageGroup warned operating profit for the year to 31 December 2023 was now expected to be ‘slightly below’ previous guidance of £120 million to £125 million.
This follows a ‘challenging’ final quarter for the company, with faltering client and candidate confidence causing group net fee income to decline by 11.1% year-on-year to £237.3 million.
Fees fell across all regions, most notably by almost 20% to £28.6 million in the UK.
Asia Pacific fee income plunged 16.4% to £35.9 million, in the Americas it was down 13.2% to £40.4 million and in Europe, the Middle East & Africa it weakened by 6.5% to £132.4 million.
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PageGroup explained that the tougher market conditions witnessed at the end of the third quarter persisted into Q4 and while salary levels remain strong, offers made to candidates are ‘not as elevated as they were in 2022’.
With the cost base under continuous review, PageGroup continues to reduce its fee earner headcount across all regions to reflect these ‘uncertain macro-economic conditions’, although a balance sheet flush with £90 million in net cash shows the company has the financial strength to withstand a slowdown.
SHOWING RESILIENCE
Chief executive Nicholas Kirk insisted his charge produced ‘a resilient performance in challenging market conditions’ and despite the year-on-year profits decline, PageGroup is ‘still seeing good activity levels, albeit we did see a deterioration in job flow through Q4’.
However, these activity levels are ‘not all converting into gross profit due to ongoing lower levels of candidate and client confidence’, Kirk explained.
AJ Bell investment director Russ Mould commented: ‘The jobs market is often a good barometer of economic conditions as firms hire when they’re feeling confident and retrench when times are tough – so PageGroup becoming the latest recruiter to warn on profit is a slight worry.’
Mould added: ‘This is a mild warning, suggesting the end of last year saw the outlook suffer significant deterioration. Profit is only expected to be slightly below previous guidance but the signs certainly weren’t encouraging in the final quarter of 2023. The company’s decision to let go a good chunk of its own workforce tells its own story.
‘A modest move higher in PageGroup’s fees for temporary placements, alongside a big drop in fees for permanent positions, suggests companies are looking to retain some flexibility with staffing needs.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
