What a nightmare turn of events Robert Walters (LSE: RWA) shareholders have endured in July. A 22% price drop so far this month reflects growing stress over economic conditions in the specialist professional recruitment consultancy’s core Asian and European geographies, as well as rising tension on how Brexit is damaging its domestic operations. And you could argue market makers are right to be concerned.
Numbers released today showed GDP growth in China clock in at 27-year lows, exacerbating fears of slumping activity across Robert Walters’ important Asian marketplace (a region in which it generates 42% of all net fees).
But are investors worrying a bit too much right now? Is Robert Walters looking a tad oversold? Judging by firm’s latest set of financials I certainly believe so, the business reporting another 5% rise in net fees (at constant currencies) in the second quarter.
Too cheap to miss?
I’m not going to suggest the market’s wrong to have re-rated Robert Walters’s share price. Economic conditions in its territories are worsening and investors need to protect themselves from this. Indeed, the mid-single-digit improvement in net fees last quarter marks a departure from the 10% rise three months earlier and the sustained fee explosions before this.
What I would say, though, is the company’s low forward P/E ratio around the bargain-basement benchmark of 10 times now makes it a top buy today, and particularly given its strong performances in spite of a challenging macroeconomic environment.
Sure, the UK market remains challenging and net fees reversed 8% here in Q2. But performances remained robust in Asia Pacific and Europe (up 7% and 13% from a year earlier) and are offsetting trouble on home shores. In fact, business is picking up momentum for its continental divisions, thanks in no small part to key performances in France, its biggest European market, and another titanic performance in the regional economic powerhouse of Germany.
Should you buy in?
It shouldn’t come as a shock that City analysts are expecting Robert Walters’ mighty record of earnings growth, one which has seen profits jump by 229% over the past five years, to slow a little in the medium term (a 9% rise is currently forecast for 2019).
Disappointing on one hand, sure. But on the other, it’s a testament to the company’s ability to keep improving the bottom-line even in tough times like these. And I believe its dedication to global expansion (it opened another Dutch office last quarter and opened its first in Mexico too) means shareholders can expect the bottom line to keep rising in 2019 and beyond.
One final thing. Broker expectations of further profits expansion underpins predictions that generous dividend growth will keep on rolling too. Last year’s 14.7p per share reward is tipped to rise to 16.1p in 2019 and this creates an inflation-busting 3.2% yield.
I think the market has badly oversold Robert Walters in recent weeks. It remains a compelling growth and income play for long-term investors, in my opinion. I reckon this recent share price weakness makes it one of the hottest dip buys out there.
