Left behind in the recruitment sector stock rally since December, Robert Walters' (RWA) results at first glance may do little to change the situation. Profit has halved, there is no growth in the dividend and the net cash position has deteriorated. Yet delve under the skin of the results and there's a different story which could change people's opinion of the business.

Nearly all of the quoted recruitment agencies have enjoyed a rising share price in the past few months including Michael Page (MPI), Hays (HAS), SThree (STHR) and Harvey Nash (HVN). Staffing agencies are a leveraged play on market opinion towards the global economy. Stronger market sentiment towards the US, UK and Asia has made the staffing sector one of the bright spots of the stock market.

Alas, Robert Walters has lagged its peers with minimal share price movement for the past six months.

RWA - Comparison Line Chart (Rebased to first)

Today's results, covering the 2012 full-year, show £7.7 million pre-tax profit, down from £15.1 million a year earlier. This is despite a 7.5% increase in revenue to £567.8 million. The final dividend has been maintained at 3.68p, giving a static total dividend of 5.15p for the year.

So if sales are up and profit is down, the problem must lie with the cost structure of the business. The eponymous chief executive officer (CEO) of Robert Walters says the costs are higher for a specific reason.

The business is reducing its exposure to the financial services industry which means it must invest in resources to target alternative sectors. The 2012 results show the groundwork made in this strategy; the task for 2013 is to achieve returns on this investment through job placements. New areas for Robert Walters include procurement, logistics, supply chain and engineering.

'It takes time to make money in new markets. You can expect to be profitable after 18 to 24 months,' says the CEO. 'We still make money from the banks and the sector is not dead, yet we realise that the group needs to have a broader focus. This shift is complete, now we have to make it work.'

Recruitment consultants are naturally optimistic. They are salesman, so they must be convinced that they can win new business otherwise they would be out of a job. Indeed, the CEO was particularly excited about the amount of business being placed with small to medium-sized enterprises. So why hasn't the dividend gone up, if the group is confident about the future?

Chief financial officer Alan Bannatyne says it would have been wrong to raise the dividend when profits have fallen. The reported 6.8p earnings per share equates to a mere 1.3 times dividend cover, so it is therefore understandable that the dividend has not gone up.

Bannatyne says the time to reconsider a higher dividend is when the company revives profit growth. The market boffins reckon this will happen in a year's time. Analysts are forecasting £9.5 million pre-tax profit for 2013, which would represent a 23.4% gain on 2012's figures. That equates to 7.24p of earnings per share which provides 1.3 times dividend cover if Robert Walters pays the 5.43p shareholder reward forecast by analysts.

Shares in Robert Walters nudged ahead 1.9% to 204.5p on today's results

Issue Date: 26 Feb 2013