Morningstar | Adecco Battles Through a Tough 2018
On the face of it, no-moat recruitment giant Adecco’s full-year results look like a confirmation that the European growth engine is in trouble. Scratch below the surface, however, and it is a different story. The company reported organic revenue growth of 3% for the full year, EBITA margins dipped over the period but picked up again in the fourth quarter, rising to 4.8%, and while excluding goodwill impairments, net income came in broadly in line with our estimates. That is not to say we are out of the woods, as revenue turned negative in the fourth quarter, falling 1% as the deceleration of European markets continued. We believe next quarter will be very telling, with European markets such as Germany and Italy teetering on technical recessions. However, we believe the current share price is discounting a full-blown global recession this year, something we believe is unlikely. As such, we view this as an opportunistic moment to begin building a position in Adecco, with almost 50% upside to our CHF 75 fair value estimate.Adecco’s largest region, the United States, continued to motor on in 2018, with the general staffing business generating organic revenue growth of 4% in the fourth quarter. The clear laggard was Germany, which saw a 9% drop in revenue combined with a 150-basis-point fall in EBITA margins. Pleasingly, the fourth quarter saw permanent placement revenue rise by 18%. The company has made significant progress over the last decade in focusing resources on less cyclical areas of recruitment such as this and countercyclical areas like career transition and talent development. Adecco also finished the year with a strong balance sheet, with net debt/EBITDA standing at just 1 times, something that could prove to be very important should the economy continue on in its current volatile state.
Adecco Group provides human resource services, including temporary staffing, permanent placement, outsourcing, consulting and outplacement. Co. has more than 5,500 branches in over 60 countries and territories. Co.'s Office and Industrial businesses offer a range of general staffing services, including temporary staffing, permanent placement, assessment, training and integrated human resources applications. In addition, Co. operates professional business lines, which include Adecco Finance & Legal, Adecco Engineering & Technical, Adecco Information Technology, Adecco Medical & Science, Adecco Sales, Marketing & Events and Adecco Human Capital Solutions.
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