Global recruitment specialist PageGroup (LSE: PAGE) has been flying this year, its share price up 50% in the past 12 months. However, the £1.59bn company has stalled today, its share price falling more than 7.5% following publication of its third-quarter results. What went wrong?
Brexit bother
I am a little surprised by the negative reaction, given that PageGroup posted gross profit of £177.3m, up 8.8% or 11.8% in reported rates. The US (29%), France (21%), Asia (22%) and Asia-Pacific (13.9%) all shone. The UK was the naughty kid in the corner with a fall of 7.6%, a problem because this is the group’s largest single market at 19% of the total. Brexit is to blame, with client and candidate confidence levels hit by grim negotiations and political uncertainty.
Happily, the stricken UK is set to take a shrinking proportion of revenues in future, as the group continues its strategy of investing in the large high growth markets of Greater China, Germany, Latin America, South East Asia and the US, where combined growth hit 17%. They now represent more than a third of the group’s business, such are the rewards of diversification.
Cash out
The UK isn’t the only troubled region, CEO Steve Ingram said that Singapore and Brazil also continued to experience challenging market conditions. However, both improved in the quarter and are now flat year-on-year. Australia, 6% of the group, was down 2%, but should bear the fruits of an investment programme.
PageGroup continues to generate plenty of cash, giving it a strong balance sheet with a net cash position of £109m, up from £89m in the previous quarter. This will shrink today but for a good reason: it is paying £52.3m in interim and special dividends. It currently offers a generous forecast yield of 3.6%. Today’s share price slippage is no bad thing, trimming its forward valuation of (a still pricey) 19 times earnings. Earnings per share (EPS) growth is forecast to be 15% this year, and 8% in 2018. Possibly one to buy on a dip and today could be that dip.
In the drink
Spirits giant Diageo (LSE: DGE) has also been growing strongly, up 20% over the past year, and 40% over two years. As with PageGroup, the result is a pricey valuation, with Diageo now trading at 23.5 times earnings. Then again, it always seems to have a high valuation, combined with a relatively low dividend yield of 2.5%.
Both are justified by strong performance. Diageo may never return to the glory growth days of previous CEO Paul Walsh, but Ivan Menezes has done well since his appointment in April 2013. Full-year 2016 results showed sales up 15% to £12.1bn and operating profits up 25% to £3.6bn. The dividend was lifted 5% last year, continuing years of healthy annual progression. Strong cash generation also allowed the group to launch a £1.5bn share buyback.
Turning the Page
Again, the merits of global diversification of clear for this £64bn business, as recent strong growth in Latin America offsets weaker performance in North America and Asia. Menezes has also boosted company margins, which should support future earnings and dividend growth. Diageo looks as tasty as it ever was. PageGroup looks a little less impressive today, but tomorrow still looks promising.
