Chief executive Robert Walters took the shine off a fourth-quarter trading update at the eponymous white collar recruitment company on Tuesday. A 20 per cent rise in net fee income annually — up 8 per cent over the year in the fourth quarter alone — would yield a record profit for the year, he said.
Very good. But a warning that earnings would be lower than hoped sent London-listed shares down by as much as 8 per cent on the day.
The market had been bracing for this moment. Rampant inflation in the west and coronavirus outbreaks in China mean the outlook for recruitment is souring.
Shares in Robert Walters were already trading 30 per cent lower than at the start of 2022. That largely reflects problems in its largest and most profitable Asia-Pacific region. Crucially, the company has still managed to increase earnings there, albeit more slowly than it otherwise might have.
The past couple of years have been great for recruiters. Pandemic stimulus meant buoyant labour markets. Vacancies could not be filled quick enough. Rising wages increased churn, translating into higher fees and earnings. On a per-share basis, earnings are now a quarter higher than before the pandemic even though revenues remain lower.
Those factors are reversing amid tech lay-offs.
Robert Walters still managed impressive growth in the fourth quarter. Net fees in Germany rose 28 per cent annually in the period and double-digit growth in France and Spain were also recorded.
History points to tougher times ahead. Earnings per share fell by three-quarters and by half in the previous two economic contractions respectively.
Forecasts for this year expect earnings growth to moderate but crucially not to fall. That is out of sync with stuttering economies and growing job losses. At a multiple of 10 times forward earnings, shares appear cheap. But in the past the share price has hit its trough a year after earnings have peaked. Wait for the stock to fall further before contemplating investment.
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