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TEMPUS

Global growth proves to be just the job

Pedestrians waling through Waterloo Brid
Headhunters have struggled in Britain, but the market is much stronger overseas
DANIEL LEAL-OLIVAS/AFP/GETTY IMAGES

Page Group
For all those seeking a window on employers’ willingness to take on staff and, in turn, the general confidence and strength of the domestic economy, the recruitment industry is as good a place as any to look. Not that doing so has offered much encouragement of late (Tabby Kinder writes).

Britain’s headhunters have painted a mixed, indeed often gloomy, picture this year, one in which UK companies have put off hiring senior staff and would-be job candidates have opted to stay put, both sides casting a wary eye on a fast-approaching Brexit.

Investors, therefore, will be grateful that Page Group, like its rivals Hays and Robert Walters, has diversified beyond UK shores. Over the past decade, all three have shrunk the British market to less than a third of group revenues. In Page’s case, Britain now generates only 18 per cent of its fees, meaning that it shortly could be passed by France as a contributor to group performance. At Hays, a quarter of fees are generated inside the UK. Robert Walters gets 28 per cent of its fees from UK job placements. If growth in the global economy remains stays robust while Britain stumbles, then Page likely will have advantage over its peers.

Page Group, which was formed in 1976 in London and now employs 7,500 people in 23 countries, has aggressively pursued diversity in both geography and job types. Placing accountants now makes up less than a third of profits. It has ploughed cash into growing its headcount in Germany, southeast Asia, the United States and China, where markets are opening up to the use of agencies to find professional staff. Fees from jobs in engineering, property and construction, legal and marketing now dwarf those made in its finance and accounting practice.

UK numbers were poor in Page’s half-year figures yesterday, with a 3.5 per cent fall in fee income reflecting jitteriness among employers. Contrast that with Hays, the largest quoted search company, which reported 5 per cent growth in UK fees at the end of June, and Robert Walters, the smallest of the three, which said that domestic fees had risen by 9 per cent.

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Yet Page’s growth in Europe and elsewhere meant that group revenues were up 12 per cent to £751.6 million and profit before tax was 18 per cent ahead at £67.2 million. The results were slightly ahead of analysts’ forecasts and Page maintained its targets for gross profits of £1 billion, operating profits of £250 million and headcount of 10,000 in the medium term.

Added to that, the company has a well-flagged policy of generating a lot of cash that it consistently returns to investors. Page has paid a special dividend in each of the past four years, including £41 million this year.

The consensus among analysts is that Page ticks a lot of the right boxes thanks to its good capital management and boss Steve Ingham, who joined the company in 1987 and has run it since 2006.

Jefferies, the broker, expects fee growth to rise over the rest of the year thanks to Page’s pedal-to-the-floor approach to investing in headcount while conditions, boosted further by wage inflation and skills shortages, are good.

The strategy seems clear and, if one is to believe that there is still a good line of sight on the economic conditions for investment, shareholders are backing a staffing company with good permanent recruitment exposure that offers decent earnings momentum, opportunities for an earnings upgrade and that is investing in the right growth markets.
ADVICE
Buy
WHY Diversification could provide a good hedge for Brexit while investment in headcount will continue to boost fee growth this year

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Spirax-Sarco Engineering
Steam and electrical energy are at the core of so many industrial processes that a company that produces the valves and pumps to control flow and temperature for manufacturers is a useful ally (Robert Lea writes).

Spirax-Sarco Engineering is one such company, some of whose products are so niche and bespoke that it can claim to be a world leader in its sector. It manufactures as Spirax Sarco in Cheltenham and as Watson-Marlow in Falmouth, employes 1,800 people in the UK and is on the cusp of the elite FTSE 100 index with a market valuation of £5 billion, higher than that of Marks & Spencer.

While 30 per cent of its production takes place in the UK, it is and has to be a global company. It is present in 60 countries, with a 1,600-strong sales force of engineers. This tech army is crucial to what it does — not only solving maintenance and operational problems, but also advising customers on how to save energy or water and to become more productive.

It does 25 per cent of its business in the United States. Britain has dwindled to less than 7 per cent. China now accounts for 15 per cent of sales, which are set to exceed £1.1 billion this year. It insists that its products are applicable for many manufacturing processes, although the food and drink industry alone accounts for about 20 per cent of sales.

It is not acquisitive by strategic plan , but it has done three sizeable deals recently that have enlarged the group by a third. Those deals are behind a 28 per cent surge in revenues in the first half of the year to £547 million on which it produced £120 million of pre-tax profit, 22 per cent higher than a year ago. The operating margins are 23 per cent. The interim dividend is 29p, up by 14 per cent. Trade wars are no one’s friend, but Spirax-Sarco reckons it can grow organically at twice the rate of global industrial production, which was 3.5 per cent last year. This all adds up to a strong investment story, but, to judge by a doubling in the stock price in the past three years, up 20 per cent in the last 15 weeks alone, it suggests one already well-known among smarter investors.
ADVICE
Hold
WHY Class company but a 27 times earnings multiple makes it expensive at present

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