Shares in recruiter PageGroup (PAGE) have fallen nearly 7% to 434p after the firm reported a slowdown in fee income in its fourth quarter on a sequential basis.

Total gross profits - also known in the industry as net fee income - rose by 15.8% to a record £211m in the fourth quarter.

While this is impressive, it marks a slowdown from the 17.2% growth rate of the third quarter which is presumably why the shares have been punished today.

‘The company also guides to a slowdown in the number of people it has hired to place candidates into jobs,’ says Russ Mould, investment director at AJ Bell.

‘Activity involving ‘fee earners’ is normally a good way of gauging confidence in the recruitment market. If a staffing agency feels that companies are confident enough to take on more workers or replace anyone leaving their job, it will continue to hire recruitment consultants. Additions will slow or cease if the outlook is gloomier.

‘Importantly, PageGroup’s CEO Steve Ingham says he is “mindful of the heightened geopolitical and macro-economic uncertainty, which has the potential to impact client and candidate confidence”.’

Profits driven by overseas growth

As in previous quarters, growth is centred on Europe, Asia Pacific and the Americas with the UK showing a marginal increase.

Europe, Middle East and Africa (EMEA) contributed gross profits of £104.4m in the fourth quarter or almost half of the group total, up 14.9% on the previous year.

France grew by 10% despite being a large market already and the disruption to businesses caused by the ‘gilet jaunes’ protests.

Germany grew by 28% although PageGroup is starting from a lower base than in France and is having to add more consultants to grow sales.

Asia Pacific grew by 23%, contributing £41.2m of profits or 20% of the group total thanks to a 30% increase in fees from South East Asia and a 12% increase in Greater China.

These are two of the firm’s five large, high potential markets and both delivered record profits not just for the quarter but for the full year.

The Americas grew by 27% to £32, accounting for 15% of profits. The US and Latin America are two more of the large, high potential markets and may soon outweigh the UK.

UK held back by Brexit concerns

UK profits grew by 2.1% in the fourth quarter to reach £33.5m or 16% of the group total.

Page Personnel, which focuses on clerical and support staff, saw profits rise by 12% but the Michael Page division which focuses on more senior roles saw fees fall by 1%.

The UK unemployment rate hit a 40-year low of 4% last summer and average weekly earnings are rising by 1% in real terms - that is, after inflation - according to the Office for National Statistics (ONS).

A tight labour market and a shortage of applicants with relevant skills mean that more employers are having to turn to specialist recruiters to fill vacancies.

The latest CIPD survey showed that 70% of firms are ‘having difficulty’ hiring and 40% of vacancies are proving ‘hard to fill’.

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Issue Date: 14 Jan 2019