Friday 28 October 2016

The world of 'temps' is now a permanent feature

Share watch with John Lynch

Published 29/02/2016 | 02:30

The world is so full of surprises that only a very silly man - or a politician - could claim to predict business trends with any certainty. Who, for instance, could have forecast 20 years ago, or even five, what sort of cosmic upheaval the Internet would bring?

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The company we are looking at this morning, the Dutch firm, Randstad, is also a manifestation of a trend that half a century ago would have been considered completely implausible.

Randstad is a service provider of staff and no one who remembers how prized full-time unionised employment was 50 years ago could have believed that a company set up (in the face of trade unions' misgivings) to recruit 'temps' could become a worldwide operation with revenues of €19bn and a workforce of more than 30,000 people.

Though the Randstad name doesn't trip off the tongue, the group has now become the second largest in its sector after Swiss-based Adecco.

It operates primarily in the Netherlands, France, Germany and the US providing a range of services in education, banking, IT, engineering, secretarial and financial positions. It has no fewer than 4,500 branches in 39 countries.

Formed in 1960, Randstad began to service the demand for 'temps' not only in Holland but in neighbouring countries. By 1990 it was launched on the stock exchange and is quoted now on Euronext, Amsterdam.

With a quote and new money at its disposal, a buying spree was begun in Switzerland, Germany and Spain. The group also expanded into India, Japan and following the fall of the Iron curtain, Poland and Hungary. A game changer for Randstad was its acquisition seven years ago of Vedior, a significant Dutch temporary staffing company, which propelled Randstad into the world's number two HR provider, behind Adecco but ahead of the US Manpower Corp. The company claims today that it finds jobs for two million people annually.

Randstad's largest market is the US with sales of €4.6bn. Two years it acquired a US outplacement firm RiseSmart for $100m (Outplacement involves helping client's former employees find new jobs).

As a source of revenues for Randstad, the Netherlands trails the US with €3bn sales and the French market with sales of €2.8bn is currently 'difficult'.

Its second brand, Tempo-Team, had satisfactory growth. Finally the German market, with revenues of almost €2bn, was up 4pc, a considerable achievement in this fragmented market with a staggering 7,000 temporary agencies.

At group level, sales were €19bn, an increase of 6pc, and a record in its 55-year history. Net profits jumped a significant 53pc to €520m, thanks to the performances in the US, Spanish and Netherland markets. Dividends per share jumped from €1.29 to €1.68.

The share price stands at €46 - below its five-year high of €65 - but way ahead of €18 five years ago. The company is valued at €9bn just short of its arch rival Adecco and has a modest enough price earnings multiple of 17. Last year the company's free cash flow rose 2pc to €500m and as a result the company was in the positions to reduce its debt. Randstad is also on track with its €17m cost reduction programme.

In the current volatile environment, Randstad and its industry operates in an ever-changing world of work. Its main markets is the US and EU, having ageing and declining populations, leading to a shortage of people with vital skills.

Meanwhile, skill shortages, a surplus of medium-skilled workers and demand for those with basic skills (and low wages) presents significant problems. At the same time new jobs driven by technology make other jobs obsolete. This presents problems for governments, who may be yearning for the 'old times', but for Randstad it's an opportunity.

They are of the opinion that greater outsourcing, increased labour market flexibility and changing client needs can only benefit them. The shares therefore are worth watching.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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