With a presence in 36 countries, the British company PageGroup PLC is one of the four big global recruitment firms. Interesting detail: its financial performance clearly exceeds that of its peers - the French-Swiss group Adecco
, the American Manpower
, or the Dutch Randstad
The secret of this success lies in a flexible remuneration system for its consultants (a minimal base salary and performance-based commission), a 100% organic growth strategy (which limits the integration risk of the acquisitions), and an obviously very well-inspired management of investments.
To be clear: the management of Page is known for its habit of putting the package in the right place at the right time - in the United States as soon as the shockwave of the financial crisis was absorbed, later on in continental China, in Europe when the economic recovery started, etc.
This global management demands a lot of effort, but the strictly non-capital intensive strategy allows the company to experiment without risk: if the development efforts don’t turn out as planned, the management can quickly plug the plug and cut the costs - after all, they only have to pay a few salaries and administrative costs when they settle somewhere.
The operating leverage is thus non-existent - which avoids the risk of finding themselves stuck with a considerable fixed costs structure when the market conditions get worse - and this allows the management to adjust the sails to their liking so that they can respond in the best way possible to the evolutions of a market that’s very cyclical by nature.
We already said it at the beginning of this article, but the examination of the company accounts over the past ten years shows a financial performance - in terms of margins and profitability of the equity - that exceeds that of its peers.
On a consolidated level, the group controls its costs well and returns all the excess capital to its shareholders, via a generous regular dividend and numerous special dividends. Of course, the benefit of a ‘cash-machine’ type of business model - continuous invoicing, with no reinvestments required - is that you can distribute all the profits without comprising the financial position of the company.
Since the activity is hardly capital intensive, it requires less than 350 million of capital via the need for working capital (mainly) and a few rare assets (the offices and the IT infrastructure). Page’s balance-sheet is thus foolproof since all the debt and receivables are covered by the current assets alone.
In terms of revenue, the turnover grows at a slower pace than that of other opportunities selected by 4-Traders
(from 973 million GBP in 2008 to almost 1.4 billion GBP in 2017, an average annualized growth of 3.5%), but it’s difficult to grow any faster since the industry Page is in is indexed to the growth of the GDP.
Encouraged by the good conditions in the markets that Page serves, in particular, thanks to the economic recovery in Europe, the analysts that follow the group project a profit of at least a 100 million GBP in 2018 and 2019.
With a market capitalization of 1.7 billion - adjusted for the excess cash - the market values the group at 17 times the expected short-term profit. An unexpected development - like for example a better growth of results, an increase of the distribution or a big acquisition - could boost this valuation.
The main risk is an unfavorable market in one of the three big geographies (North America, China, and Europe). However let’s not forget that, apart from the 2009 episode, Page has gone through the 2011-2013 period (which was very difficult in Europe) particularly well.
By the way, for the reasons mentioned above, while an episode of major (economic) stress would necessarily impact the company’s activity, it wouldn’t compromise the survival of the company (at all) which is remarkably flexible and well-capitalized.
Translated from the original article
Article published on 05/24/2018 | 15:05