PageGroup puts out profit warning and cuts staff amid gloomy recruitment market

“How times change. In August, PageGroup handed out a £50 million special dividend. In January, the recruitment specialist has served up a mild profit warning and further cut its headcount in response to a third straight quarter of year-on-year decreases in gross profit and a weak end to 2023,” says AJ Bell Investment Director Russ Mould.

“Add this to a trading alert from Hays and a slow, downward leakage in profit estimates at Robert Walters and the jobs market may be finally showing some weakness, some two years after the first round of central bank rate hikes. This may help to justify the rate cuts for which financial markets are now baying, but if they come because of a hard economic landing, rather than the widely anticipated soft one, the picture may not be as rosy as the fourth quarter’s broad stock market rally might imply.

“Last Tuesday’s warning from Hays means that the alert from PageGroup is not the biggest surprise in the world and the earnings miss feels as if it will be relatively small, given chief executive Nicholas Kirk’s acknowledgement that operating profit for 2023 is now expected to slightly undershoot the company’s prior guidance of £120 million to £125 million. It looks as if consensus estimates had already slipped to £119 million, a near-40% drop from the £196 million recorded in 2022.

Source: Company accounts, Marketscreener, consensus analysts’ forecasts

“Like Hays, PageGroup is flagging a particularly weak end to 2023. Whether this is a just a blip or a more serious trend is hard to discern but gross profits (or net fee income) are down year-on-year for the third quarter in a row.

Source: Company accounts

“If anything, the longer-term trend in gross profits almost makes 2020-2022 look like a massive outlier, thanks to covid and then the huge amounts of monetary and fiscal stimulus that were thrown at the economy by central banks and governments to support the economy during the pandemic and lockdowns. PageGroup’s profits lost momentum in 2019 and maybe that trend has started to reassert itself, especially after two years of tighter monetary policy.

“Geographically, the UK market remains notably weak, and it is the only region to show a further deterioration in the rate of decline in gross profit in the final three months of the year. The good news, if it can be called that, is the overall rate of decline at group level is no worse in the fourth quarter than in the third.

Source: Company accounts

“The relative strength of temporary hires compared to permanent ones remains a concern. When they are feeling confident, firms will focus on permanent hires. When they are not, they may be more careful and switch to hiring more temporary positions, giving themselves greater flexibility should trade deteriorate any further. It could therefore be a warning of a wider softening in labour markets, a scenario which stock markets are not currently entertaining, as they

Source: Company accounts

“PageGroup is wisely taking precautions of its own, in the form of cost cuts. Headcount fell again in the quarter and is now 16% lower than it was a year ago, a trend that may prove telling, in that a recruitment agent is itself retrenching and cutting staff.”

Source: Company accounts

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