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.
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.
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).
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.”
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.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.