EUR 850.00 For Business Accounts Only

Morningstar | No Bad News is Good News for Recruitment Giant Adecco

At first glance recruitment leader and no-moat Adecco’s first-quarter results look dour, with organic revenues down 2% year over year and EBITA margins down markedly and sequentially versus the full-year 2018 result. Digging deeper however, the numbers were positive. EBITA margins are actually up 20 basis points year over year, given the seasonality in the business. Commentary over revenue growth indicates that despite the decline, currently there appears to be some stabilization in key European markets, with the exit rate in line with the rest of the quarter. This should help reassure investors that we are not free-falling into another full European recession. We maintain our forecasts and CHF 75 fair value estimate. Despite a strong rally off the bottom, we believe the shares still offer significant upside.

One area of slight concern was North America, Adecco’s largest single market, in which management commented about a slowdown over the period. Given the consistency of the growth pattern here over the last few years this is surprising. However, given the early stage of the year and the inherent volatility in the recruitment business model, we are hesitant to read too much into a single data point. Likewise with the rest of global business, in which management noted an acceleration in growth over the quarter.

As the industry leader in the recruitment sector we believe Adecco, while not immune to the economic cycle, should continue to benefit from several structural trends. This  includes the shift to outsourcing recruitment and HR activities, particularly by multinational companies, as the regulatory and compliance burden of these activities increases.