Morningstar | Growth Slows for Adecco, but Underlying Business Remains Solid
No-moat recruitment giant Adecco’s headline third-quarter numbers, which were well flagged at its recent capital markets day, came in slightly ahead of market expectations and broadly in line with our full-year forecasts. Organic revenue growth slowed to 2% from 4% reported in the second quarter, very much in line with the rates peer Randstad reported just a few weeks ago, while EBITA margins were slightly stronger than the second quarter at 5%. While some investors may be concerned about comments that revenue growth slowed further to 1% into September and October, we are not yet willing to push the panic button and believe that this is most likely the catch-up effect from stronger growth at the beginning of the year. Thus far in 2018, organic revenue growth has averaged a solid 4%, and countercyclical areas such as the career transitioning business are still experiencing revenue declines, indicative that we are not entering an economic slowdown. We do not expect to make any changes to our longer-term forecasts on the back of these results and reiterate our CHF 75 fair value estimate. With more than 50% upside from today’s share price, we believe the level of fear built into current market expectations offers an excellent opportunity for investors to accumulate a position in this name.Divisionally, many of the same trends reported recently by Randstad shone through: Slower market growth in France and Germany and a relatively benign level of growth in U.S. markets persisted, areas such as Italy continued to deliver strong growth, and margin performance varied entirely country by country. Again, we would view the lack of a broader-based slowdown in growth as a sign that this is merely a pause for breath in countries such as France and Germany that performed strongly at the beginning of the year.
Please see our Nov. 1 Select report on the sector, "These Recruiters Offer Attractive Opportunities."
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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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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