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Robert Walters PLC: An Alternative Play On The UK Economic Recovery

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As a specialist recruitment agency, Robert Walters (LSE: RWA) is uniquely positioned to ride the UK’s economic recovery, as the company reports a rising demand for other companies seeking its services.

Actually, Robert is more of an international recruitment specialist, with 53 offices spanning 24 countries. In addition, the company offers recruitment consultancy services, mainly within the professional jobs markets of accountancy, finance, engineering and IT.  

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Further, with a client base including the world’s leading blue-chip companies, Robert’s business has somewhat of a defensive nature.

As the global economy starts to gain traction and return to growth, Robert Walters could be a perfect pick for growth and income seekers alike. 

Profits surgingstock exchange

And it would appear that Robert is already profiting from the global economic recovery. Indeed, the company released a trading update today detailing its performance for the second quarter of 2014.

Management revealed that the firm had achieved its seventh successive quarter of net fee income growth. This strong performance was led by a rising demand for the company’s services within the Asia Pacific region, specifically, Japan, Hong Kong, Malaysia and Thailand.

Surprisingly, Spain also performed well, with Robert’s fee income within the region doubling from the year ago period. Within the UK net fee income jumped 21% year on year. Overall, during the second quarter net fee income rose 12% in constant currency.

Based on this strong growth, the City expects Robert’s earnings per share to jump 20% this year, followed by 37% during 2015.

Unfortunately, with earnings expected to rocket over the next year or so, Robert’s shares are trading at a premium. At present the company trades at a lofty forward P/E ratio of 31, which some investors may find unattractive.

Cash cow

As a primarily fee-based business, with an asset-light business model, Robert Walters is an extremely cash-generative company. For example, for the year ended 31st December 2013 the company reported a gross profit margin of 35%, although the company did report a net profit margin of only 2% for the period.

Still, as most of Robert’s staff are paid on a commission basis, so it’s easy to see where most of the money went. Nevertheless, over the period the company generated net cash from operating activities of £16.4m — that’s 160% of pre-tax profit.

Further, as Robert is an asset-light company, with no need to spend heavily on expensive capital assets, the majority of this cash goes straight into the company’s bank account.

So, even after paying out a dividend of 5.2p per share for 2013, a total outflow of £3.9m, the company still had nearly £10m to play with.

All in all, this means Robert’s net cash balance is growing rapidly. Within the recently released second quarter trading statement, management revealed that the firm’s net cash balance had surged 110% to just under £15m, or approximately 20p per share.

With this much cash sloshing around, a dividend hike or special one-off payout could be on the cards. 

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Rupert does not own any share mentioned within this article.

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