The Office for National Statistics has just reported an unexpected contraction in the UK economy, with a 0.3% shrinkage in November. If that continues into this year, it might pay to seek investments that are economically more diverse.
That umbrella covers PageGroup (LSE: PAGE), the international recruitment specialist, though that company does have exposure to the problematic Asia Pacific economies too.
The firm has just reported a 0.4% decline in gross profits for the 2019 fourth quarter, but results are varied across geographic sectors. In its home territory, the company suffered a 4.8% fall, but the UK only accounted for 16% of gross profit, which makes PageGroup relatively immune to a downturn here.
Full year
Things were brighter for the full year, with a 5% rise in gross profit and 19 countries reaching new records. Previous guidance for the year is still on the mark, with operating profit expected to be in the range of £140m to £150m.
Chief executive Steve Ingham said: “The majority of the Group’s regions were impacted by macro-economic and political uncertainty in Q4…Trading conditions were more challenging in many of our larger markets, including Greater China, the UK and France.”
In the light of that, I see the year’s results as impressive, and I expect PageGroup to perform well when conditions improve. A P/E of around 14 looks like a fair valuation to me, with ordinary dividends coming in around 3% (but with specials set to boost dividends for this year and next).
Building
When it comes to the building trade, like the recruitment business, I think it pays to seek those with a more international outlook.
In October, I examined Grafton Group (LSE: GFTU) after the company issued a third-quarter profit warning, saying that “I still rate Grafton as a buy, and the next year or two could be a good spell for topping up.”
Since then, the share price has been on the rise, and a year-end trading update from the the international builders merchants and DIY group provided a 12% boost when the market opened — softened to a 6% gain at the time of writing.
The company told us: “Trading in November and December was better than anticipated.” It is now expecting an adjusted operating profit of around £202m (approximately £190m on a pre-IFRS 16 basis for continuing operations), even though “end markets remain subdued.”
Global strength
The UK market was the weakest for revenue with a 1.1% fall, but rises across the rest of the firm’s regions resulted in an overall total gain of 2.7%. The Netherlands market was the star with a 36.2% gain, but Ireland came in 5.4% ahead too. These are all at actual exchange rates — revenues at constant currency were slightly better.
The PageGroup share price has firmed up since I last rated the shares a buy, and we’re now looking at P/E multiples close to the market average at around 14. With earnings growth on the cards for 2020 and 2021, and dividend yields of around 2.5% covered three times by earnings, I remain positive.
