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Morningstar | Randstad Company Report

Randstad operates in a highly fragmented industry in which it is one of only three global recruitment providers. With a presence in over 39 countries, representing more than 90% of the global HR services market, Randstad has the ability to service global contracts with multinational firms, while also being able to effectively service small to midsize enterprises, or SMEs, through its strong local branch network. The recruitment industry has historically been highly cyclical, and due to the low barriers to entry, it is notably competitive, with recruitment firms readily sacrificing margins in order to gain volume. As one of the largest players in the industry with an estimated market share of 6%, Randstad has benefited greatly from both economies of scale and learned operational efficiencies over the years. This is evidenced in its revenue per employee and revenue per branch metrics, which have increased by 30% and 80%, respectively, over the past decade. Randstad has also made some progress in diversifying away from the general staffing business into the higher-margin professional and in-house services businesses. The professional market is estimated to be currently worth over EUR 100 billion globally; thus, with a market of share of less than 4%, we see significant headroom for Randstad to expand this segment over time, enhancing the profitability of, and reducing the cyclicality of, the overall business. There are also several structural trends from which we believe Randstad will continue to benefit. The move to more flexible work arrangements has increased the overall demand for temporary workers, as has the shift by governments towards reduced regulation surrounding temporary employment contracts. In particular, for Randstad, the trend for multinational companies to outsource HR functions as their businesses become more complex is a major boon. Given the limited number of recruitment firms with the capabilities to manage contracts on a global basis, Randstad is well placed to capitalise on this opportunity. Ultimately, we believe that this combination of structural factors will allow Randstad to continue expanding at levels greater than GDP growth.