Contrarian Opportunity? Here’s What The StockRanks Are Saying About Recruiters

Mon 4:40pm by Roland Head

11 comments 885 reads

A year ago, I’d have suggested that many UK recruitment stocks could be attractively priced. Here’s what’s happened to a basket of these stocks since then, compared to the FTSE All-Share index:

Buying into a falling trend too soon is a mistake I’ve made more than a few times in my investing career.

My article next week will take a data-driven look at the influence of momentum on UK stock market returns over the last decade.

However, this week I’ve been taking a more focused look at what the StockRanks are saying about the recruitment sector. Are contrarian opportunities emerging – or is it still too soon to consider buying?

Recent progress has certainly been cautionary. The chart above represents the aggregate performance of the following UK-listed recruitment firms:

Hays (LON:HAS)
Pagegroup (LON:PAGE)
SThree (LON:STEM)
Robert Walters (LON:RWA)
Staffline (LON:STAF)
Gattaca (LON:GATC)
Empresaria (LON:EMR)

Only one is in positive territory on a three-year view, with others seeing share price falls of up to 65%:

Of course, recruitment has always been a cyclical sector, where profits are leveraged to the health of the economy.

In good times, employers are hiring and job hunters have negotiating power. Candidates also have the confidence needed to walk away from established jobs and take a chance on something new – something that has reportedly not always been true over the last 18 months.

Profits can rise quickly as busy recruitment agents are able to drive higher volumes.

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[PageGroup]

When conditions become less favourable, these dynamics can go into reverse. Profits can slump as employers slow hiring and would-be candidates hesitate to give up secure positions with their current employer.

This is a sector of the market where investors need to have good timing to maximise profits. The chart below shows the performance of PageGroup, Robert Walters and SThree over the last 20 years. Note how their share prices have all moved largely in lockstep throughout this entire period:

Unsurprisingly, most of these companies have some common characteristics. Using PageGroup as an example,…

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Nonns

Tue 10:49am

I think the ai angle points to a long term declining market from two perspectives. Fewer jobs available and more automation around the recruitment and thus less need for recruiters. At the high end (executive level) it prob won’t change much but at every other level I suspect it will. I’ll not be putting my money into recruiters any time soon. I may miss out but as I miss out on a million opportunities daily I’m not too bothered.

An interesting article - thank you

rwh3ue

Tue 11:42am

Interesting article Roland, (I hold some STEM). At least one other company in my portfolio has stopped using recruitment companies to fill its vacancies. It advertises directly, and screens applicants in house. It's quicker, cheaper, more targeted and eliminates a lot of chaff that recruiters may speculatively send along which just wastes your time.

There was a good article in the Times the other day explaining why all recruiters have been seeing a prolonged downturn. it's worth a read

https://archive.ph/thjWv

Roland Head

Tue 12:58pm

Hi rwh3ue,

Thanks for the link (especially as it's not paywalled!). Interesting article.

Roland

ridavies

Tue 1:20pm

Interesting comment from MPAC in their Finals this morning. They talk about reducing recruitment costs by managing more in house. Precise comment, under People: 'We made improvements to our recruitment process, reducing the cost of recruitment through the introduction of an internal recruitment function in key regions' Don't know exactly what that means and whether they are using external recruiters less. Presumably so. How many other companies taking this unusual 'disruptor-type approach?

Elsewhere in your article, Roland, I don't think that the recruiters are going to come back in the same way, because of the other changes in the marketplace you mention. I'm pleased to say that I am not invested, and wont unless there is much more encouraging data coming out.

Incidentally, don't know whether there is a major difference between East and West in these respects, which could be more important to those which have a wider geographical spread.

timarr

Tue 1:58pm

Interesting article Roland. I hold Robert Walters (LON:RWA) more out of hope than expectation, although I would expect some form of recovery at some point.

Alex Sweet wrote an interesting article on recruiters a while back - focused on Robert Half from the US, but the conclusions seemed international: https://sweetstocks.substack.c...

This is what LinkedIn and Indeed have achieved over the past decade or so.

This is a double whammy for traditional recruiters - firstly this must be taking revenue away from them as companies use these tools to move recruitment in house, plus the recruiters need to pay for access to LinkedIn and Indeed themselves.

I fear that the recruiters are trying to push water uphill. At these levels there probably is some recovery value in them but I struggle to see the long term opportunity. This looks like another market that the internet has disrupted to painful effect.

FREng

Tue 2:48pm

Your article is a great example of how to research companies to explore investment ideas. Many thanks!

Silver Moon

Tue 3:14pm

Interesting, AI the guillotine of recruiters. I hold SThree (LON:STEM) and Robert Walters (LON:RWA) . I once top-sliced Robert Walters, wish I'd been one to guillotine it there and then.

BnB

Tue 4:14pm

Forgive me for pointing this out, but I’m pretty certain you are wrong on both counts. LinkedIn (amongst a range of online tools) has simply replaced traditional advertising channels on which clients and recruiters used to lavish huge budgets. Do you remember the jobs section of the Sunday Times? It cost 10 grand to advertise one job - and that was in old money. Now it’s so much easier to right size your spend, while the website as a whole is a headhunters charter - and free of charge!. Additionally, LinkedIn is not making a hole in recruiters’ incomes. It helping them to make more money, more efficiently. Of course, the market isn’t helping at all right now and everyone is struggling. When it picks up again assumptions by industry outsiders that LinkedIn is eating recruiters’ lunches will be shown.to be way off the mark.

Apologies for the slightly irritated tone of this post. I’ve commented several times on this matter in great detail and in a far more measured tone.

AI is a different matter, but I think its impact is more likely to be on the whole employment universe than it is on the continued demand for recruiters’ services

Tue 4:24pm

Hi BnB

Irritated is fine. I get a lot worse at home.

mikebianchi

Tue 5:00pm

Great article suggest revisiting approaching the next budget. Labours NI hike is very damaging to confidence, it loses trust in a Chancellor just what will she do next eh ?

All about as dumb as changes being made to property letting, its just driving up rents and reducing choice

Perhaps one day a goverenment will reward the hard working risk takers rather than pandering to the lazy. The reason we are bust and taxes never so high is the welfare bill

johnsmith68

Tue 10:04pm

Thanks Roland - another really interesting and thought provoking article. Would be great to see similar articles on other sectors - fund managers perhaps?

Contrarian opportunity? Here’s what the StockRanks are saying about recruiters

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Roland Head

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