Morningstar | A Mixed Bag for Randstad in 3Q; Shares Attractively Priced
No-moat Randstad’s third-quarter update was something of a mixed bag. Organic revenue growth slowed to 2.7% over the period from the 7.4% and 5% delivered in the first and second quarters, respectively, while the underlying EBITA margin actually picked up over the same period to 5%. The slowdown in revenue growth should not come as a huge shock, given Adecco’s impromptu update last month at its investor day; however, the current weakened share prices for both stocks would suggest that many investors believe this is the beginning of an economic slowdown. We do not believe this is the case and suggest that this climb-down in revenue growth over the period simply stems from the catchup effect of stronger-than-normal growth at the beginning of the year. As such, we do not expect to make any material adjustments to our longer-term forecasts, nor to our EUR 61 fair value estimate. We believe the current share price offers an attractive margin of safety.This catchup effect is clearly evident when we look at the performance on a regional basis. If we take regions such as France and Germany, for instance, both grew at a blistering pace in the first six months of the year, with revenue increasing by 10% and 7%, respectively, in the first quarter, and 3% and 6% in the second quarter, well ahead of any GDP-like measure. In the third quarter, we saw declines in organic revenue by 1% and 2%, respectively. Although many may look at this pattern of decline and assume the worst, the average growth rate for the year to date for the two regions still equates to a very healthy 4%. Conversely, for Randstad’s other large markets, North America and the Netherlands, organic revenue growth has remained stable throughout the year, with North America actually increasing incrementally over the course of the year to 3% in the third quarter. This indicates to us that this is not the start of some broad-based slowdown, but rather evidence that not all regions grow linearly.
Randstad is a global staffing and recruitment company, providing various solutions in the human resources (HR) services space. Co.'s services include regular temporary staffing and permanent placement of candidates. In addition, Co. provides several other HR solutions, such as Recruitment Process Outsourcing (RPO), Managed Services Programs (MSP), payroll services, and outplacement. Co. provides four distinct service concepts: Staffing, Inhouse Services, Professionals and HR Solutions.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
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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