Shares in recruiter PageGroup (PAGE) jumped 11% to a post-pandemic high of 554p after the firm filed a positive first quarter trading update and predicted a strong rebound in full year operating profits.
RAPID IMPROVEMENT
For the first three months of 2021, gross profits - also referred to in the industry as net fee income - rose 1% on the first quarter of last year, but more importantly were only 10% behind 2019’s first quarter.
Profits rose sequentially each month during the quarter, led by Asia Pacific and EMEA (Europe, Middle East and Africa), the firm’s two largest business areas, with growth of 14.8% and 5% respectively.
Growth was still negative in the Americas and the UK, which together represent just under 30% of gross profits, but as a whole the group has seen its income recover much faster than the market expected. In March alone, profits were just 2% below their 2019 level.
‘We delivered record months in March in markets such as Germany, Italy, Spain and South East Asia’, said chief executive Steve Ingham. ‘At this stage of the recovery, it is not easy to determine whether the improved performance is the result of pent-up supply and demand, or the beginning of a sustainable trend.’
UPGRADES TO COME
Despite the continued macro uncertainty, and notwithstanding it is still only April, Ingham says the firm’s confidence in the full year outlook has improved and he is now predicting a recovery in operating profits from £17 million last year to between £90 million and £100 million this year.
That compares with consensus estimates of around £74 million according to S&P Market Intelligence, suggesting analysts are going to have to push through some hefty upgrades to their forecasts.
EXPERT VIEW
Analyst David Greenall at Dublin-based stockbroker Davy was predicting operating profits of £63 million but says: ‘Forecasts will clearly move materially for the current year. The key to the investment case had been the trajectory of recovery with the anticipation that operating earnings would broadly return to 2019 levels by 2023 - this could now be much earlier’.
He also flags the firm’s financial strength, with £136 million of net cash compared with £83 million at the end of March 2020.
‘Page’s balance sheet strength should allow a return to ordinary dividends as well as material special dividends from the current year. This is a stark contrast to the period post the Global Financial Crisis when it took a number of years before Page felt comfortable enough to resume special dividends’.
