Following an exchange on Friday, Paul challenged me to review the latest presentation from Empresaria (LON:EMR), a company which he holds and for whom he has high hopes, but over which I have more than once expressed my doubts on Stocko. Paul was kind enough to describe me as a recruitment sector expert but pointed out, with some justification, that “experts tend not to take company presentations seriously”. Since Paul works so hard for us, I thought it only fair to agree to take a more detailed look at the Empresaria offering with reference to the presentation at https://www.youtube.com/watch?v=Uj11z6P8w-E
Some context. I have had some small success with enterprises in the recruitment sector. Some readers might even have had shares in a company I floated, since taken private. These activities are behind me and I now invest actively and, in these inflationary times, with far less success, in the IT, healthcare and industrial sectors with a strong growth bias and a particular focus on technological innovation. I know a thing or two about electrification, a good deal about cloud computing, but recruitment, well there I’m on solid ground.
A word about the recruitment industry. Outsiders unsurprisingly assume that the likes of “big guns” Adecco and Hays lead the industry, when in fact their market share is still tiny and their reputations within the industry somewhat compromised. Recruitment is a hugely diversified marketplace with some well defined levels of prestige and profitability. At the top of the prestige scale are the upmarket executive search businesses. But these have very high staff overheads owing to the partnership structures and are therefore poor investments – they are run for the partners. Leading the profitability charts are the boutique specialist recruiters with deep customer relationships and high margins built on the technical expertise of their highly experienced staff. Importantly, those in sectors where there is a structural skills shortage, IT being the standout example, are hardly cyclical at all. Revenue and profit CAGR over long periods of longer than a decade can exceed 10% and even reach a sustained level of 15% in the strongest examples. Somewhat behind them in operating performance are the large quoted specialists like Sthree (LON:STEM) and Robert Walters (LON:RWA) which exhibit some of these desirable characteristics, but whose business models, scale and churn tend to lead to a relatively less enticing, if…
