Gathering thoughts on Robert Walters

3rd Nov '17 by John McHale

11 comments 4270 reads

Looking at Robert Walters as a potential buy.

Green lights for me are:
- Sales growth of 24.6% in the last six months versus the same period last year, and 25.7% for the six months before that.
- Looks to be well diversified across different countries
- EPS growth and expected to grow further
- Well above its 52 week low and now trading at or close to its all time high.
- RSI above 70
- F-score of 8
- Good free cash flow % v post tax profits
- ROCE of around 27%
- PEG less than 1
- Low long term debt versus cash and profits
- Broker research shows two buy with one giving a target of 700.

Amber lights for me:
- Doesn't have three quarters in a row of growing sales, earnings and net profit margins but is that to do with seasonality?
- Debtors up at a higher rate than sales but cash is up and creditors down so I can probably live with that.
- Have I missed the boat on this already? Directors sell at around 590.
- Operating margin only around 2.92% but is that the nature of the industry?
- When I looked reported PE was 24.5 forward was 16.9 and average was 23.2 so again have I missed the boat?
-NTAV v Share price - relevant in this case?
- Div yield only 1.34% but div cover 2.99 - could find anything about div policy
- Earnings yield 4.36% according to 3rd party website
- Current ratio around 1.38

Red lights for me:
- Market to book price looks high but is it relevant in this case
- Recent director sells at 590?

Further research needed:
- Market prospects
- Competitive advantage?
- Main shareholders?

Thoughts welcome

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Julian Rowe

15th Nov '17

I've been looking at this stock as well, today,.
I noted the following:
Blackrock increased its holding to 11.78% (up 0.78%) on 10th Oct 17.
Standard Life Aberdeen plc reducing its holding to 10.9 26 Oct 17 (down approx 1%).
Passes 4 screens (2 Growth, 2 Momentum).

Robert Walters passes 9 / 9 of the Martin Zweig Growth Screen Strategy.(Winning on Wall St)

Robert Walters passes 5 / 5 of the James O'Shaugnessy Cornerstone Growth Strategy (What works on Wall St)

Stock price up 23% in 3m.
Robert Walters ROCE % = 30.6

Even so, RWA compares relatively favourably against others in field LON:RWA, LON:STHR, LON:HVN
I always hate the thin margins...Industry median is only 4.32 (RWA = 2.92) - 200th out of 344 monitored.

shrew75 you rightly mention P/B is weak ( Industry Median: 2.25 vs. RWA: 4.68 )

I feel more comfortable with P/S ( Industry Median: 0.92 vs. RWA: 0.44 ) which is respectable, and P/TB.

I agree with you about valuation

Robert Walters as valued by the Tangible Book Value Valuation Technique

Current Price 638p
Mkt Cap: £ 483.2m
Implied Valuation* 121.45p (81.0% overvalued)

Redrichmond

I was going to pile in ... But wait until after the 22th November in the budget...

One thing that may rock the world of the Recruitment companies is this... Contractors make up a lot of their income

http://www.itcontractor.com/theresa-may-abolish-contracting-profession-june/

Last year the law changed to public service (nhs, government) and contractors had to quit or work through umbrella companies.. A lot of consultants wont touch those contracts now...Either they went perm or jobs were filled by Outsourcing companies such at Tata etc..

I have been watching this share for ages but a black swan event like this law change may temporary impact profits..

"According to recent budget leaks in the Times and Financial Times newspapers, Theresa May intends to abolish contracting profession in April 2018 as we know it.

It will certainly be a lot smaller marketplaces than previously.

Chancellor Hammond will announce it in his November 2017 Budget according to the leaks.

It seems that the IR35 changes that the Government rolled out in he public sector in April 2017 are to be rolled out in the private sector as well according to budget leaks to the Times and Financial Times.

Unfair Tax Advantage for Contractors

The basic premise is, as Theresa May and Chancellor Hammond stated “It is unfair that a self employed person making £100,000 a year should pay less in tax than an employee earning £100,000 a year

Matthey Taylor’s final report landed on Theresa May’s desk in June.

The report said that companies are abusing the law by taking on supposedly self-employed workers for jobs that are normally done by permanent employees.

Companies are doing this to avoid paying sickness benefit, holiday pay, pension and maternity benefits"

John McHale

16th Nov '17

Thanks for pointing that out Redrichmond, lets see what the Budget brings then. I wonder if anybody asked the board about it at the AGM back in May.

Looking at the share of revenues:
Asia Pacific 33%
UK 49%
Europe 16%
Other 2%

Profit before taxes though:
Asia Pacific 48%
UK 25%
Europe 27%
Other 0.6%

It'll be interesting to see how the share price reacts to any adverse news from this.

What you need from them is there revenue from the UK contract market

Not everyone works through a LTD ,working through umbrellas are ok but if you could find out the LTD portion for the Uk you would get an idea. Ping a mail to investor relations and also to Sthree. Good luck in getting numbers

17th Nov '17

I'll contact them at lunch time and let you know what they say.

dfs12

Hi, I'm uninterested to see that you perceive rsi of over 70 as a positive. For me that would flag the share as approaching overbought, therefore tend to suggest a share fall is on the cards. Is there any methodology that I have missed that suggests that a high rsi is a positive?

23rd Nov '17

Lucky edcape in the budget regarding IR35 for contractors ..for now.. I would fill your boots and sell a month before next budget

This is what the government said.. Basically a law change is coming but no idea when ...Most/all recruitment conpanies will take a large hit when this is eventually implemented just like the public sector/nhs model

From the budget...

""Therefore the government will consult carefully in how to tackle non-compliance in the private sector"

Never heard a word back from Investor Relations.

No you wouldnt do because they know theres no way get round these new employment intermediaries law thats coming

Damian Cannon

16th Mar '18

Circling back to this, because I like Robert Walters (LON:RWA) and they put out some excellent results a couple of weeks ago (https://www.investegate.co.uk/robert-walters-plc/rwa/annual-financial-report/201803010700133210G/), I got in touch with their investor relations department.

The upshot is that they haven't given any guidance on IR35 in the private sector because this is still under consultation and they are involved in this process. The plan is for this to complete in April 2019 but it looks like this will be pushed back due to Brexit.

Unfortunately I wasn't able to extract the perm/temp split for the UK because this is seen as commercially sensitive information. What we do know is that the UK is providing 29% of NFI and 28% of operating profit with the group perm/temp split being 68/32. The group are moving towards a more balanced perm/temp split but without a specific KPI I believe.

So right now the future is unclear but when the company have concrete details regarding the IR35 implementation then they'll be able to comment on this publicly.

Damian

Gathering thoughts on Robert Walters

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John McHale

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