Switzerland’s Adecco is a handy barometer of global economic prospects. Recruiters make bumper profits when economies are booming and clients are hiring. They languish pro-cyclically when work is scarce.
Labour markets are tight at present but Adecco shares are warning of storms ahead. The stock has fallen by a third over a year. This week, the group said it remained “on track” to deliver on its first-quarter outlook, outlined in late February when Russia’s invasion of Ukraine was just starting.
Back then, Adecco expected “robust economic growth” to power solid top-line growth, while investments would buoy profits. Yet a month down the line, the macroeconomic effects of the war appear largely negative. Surging commodity prices threaten to blow Adecco’s growth plans off course. Any subsequent drop in employment would seriously dent them.
Adecco is helped by its broad geographic footprint. This encompasses the US but not Russia or Ukraine. Economic disruption could bring benefits if companies seek to retrain workforces or exploit growth opportunities. Market shares gains from weaker rivals may partially help offset a gloomier world outlook. So too could a drive to reduce costs.
But Adecco’s share price decline suggests any optimism would be misplaced. There are early signs of wilting in a eurozone economy pummelled by inflation and escalating energy prices. Lay-offs in big industry look inevitable.
Investors clearly align with pessimistic pundits. Adecco’s shares have sharply underperformed peers. Three years ago they traded on similar multiples to rivals. Now, at 10 times earnings, they are priced at a 20 per cent discount to Randstad and Manpower.
Adecco did not offer any income guidance beyond the first quarter. That was sensible given the shifting political ground underfoot. Investors, making their own calculations of how things will pan out, see more squalls than sunshine. Adecco will make the defensive argument that it has superior operational skills to rivals, but competitors will make the same claim. The pro-cyclical gearing of recruiter shares is simply a fact of life for traders to exploit and chief executives to live with.
