The massive recruitment firm that might be worth a decco
I was strangely attracted to the company we are analysing today, not by the fact that in global terms it is the largest in its field, or that it has 5,100 offices in 60 countries, or even that it has a staggering 33,000 employees.
I was attracted by its name. It is the Swiss-based recruitment agency Adecco.
Where I come from in Dublin, a 'decco' was a commonly-used slang word for a 'look-see', a measurement, an appraisal, or a check on value.
So when I took a 'decco' at Adecco, I thought it was the most singularly appropriate name for a company whose business is checking out the talent. It is also a leader in an industry that has grown in meaningful terms only in the past 50 years or so.
The idea of a vast global company which derives the lion's share of its income from filling temporary jobs would have been a commercial daydream more than half a century ago
Adecco is the result of a merger less than 20 years ago between the Swiss company Adia and the French company Ecco, which had been busy consolidating European recruitment businesses including the UK firm Alfred Marks. Today Adecco offers permanent and temporary jobs, outsourcing and HR consultancy. Over 90pc of its revenues and 75pc of gross profit comes from temporary jobs.
About half of Adecco's placements are industrial jobs and office staff represent a quarter. Industrial positions include placements in the cars, hotels, construction and transport sectors.
The company claims it is represented in 60 countries but in truth it is essentially dependent on Europe. While Europe, USA and Japan, generate almost 90pc of Adecco's revenues, its biggest play is in Europe, mainly Germany, the UK and France. Given its origins, it is no surprise that Adecco is the market leader in France where it generates 24pc of group revenue.
Relying on France just now can be a tricky proposition: retrenchment there because of the economic weakness has produced profit falls and job losses and a large redundancy bill.
Following the merger, Adecco strengthened its position in the US with acquisitions making it the No 1 recruitment company in the US. While the US market is the world's largest, it is highly fragmented. Adecco, which has only 4pc market share, generates 20pc of group revenue in the US. It is estimated that the consequence of the US recession was a loss of 900,000 temporary jobs. But by the end of last year one million of these had been recovered.
The German market generates 8pc of group revenue, with sales of €1.6bn. However, regulations in Germany insist that temporary workers are employees of the recruitment company, so in Adecco's case, temporary workers are on its payroll.
Japan is the second largest market in the world but it is also fragmented. It is Adecco's fourth biggest market, yielding revenues of €1bn, three-quarters of which come from office placements. Some observers think the company is missing the boat in Japan, and should have been more aggressive there.
Income generation in this business largely depends on the global economic environment. So, for Adecco, the last five years has been one of recovery. Five years ago, revenue was €15bn. Today, it is heading for €20bn. At the same time, net income rose from a miserable €8m to €560m.
Adecco has been generous to shareholders with good dividend growth. They are also happy with the plan to extend the share buy-back programme up to €250m, when the present programme ends. Investors also welcomed the news that acquisitions are unlikely in the foreseeable future, it helps paying dividends.
The company is valued at SWF11.50bn (€9.6bn) and has an undemanding price earnings multiple of 13. Adecco share price has risen from the low 40s in late 2012 to the high 60s today, just below its yearly high of 73. The thing about Adecco is that it and its shares react quickly to global change; this can be both positive and negative.
Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.