YinYang/E+ via Getty Images
Investment account
Recruit ( OTCPK:RCRUY ) continues to be under pressure due to declining job openings worldwide. The market expectations for the business are still low and we do not expect good performers in the short term. medium term. Fairly but not perfectly, we rate the shares as undervalued.
first quick
Recruit Holdings is a Japanese media company specializing in HR and online job listings (HR Technology), residential media and marketing (Matching & Solutions), and temporary staffing services (Staffing). HR Technology is the main cost driver, accounting for 70% of total adjusted EBITDA, with the remaining 15% for each segment. 55% of total sales come from international markets. The company has embarked on a successful international strategy since 2010. It has properties such as the real job search engine (acquired in 2012) and the career information website and company Glassdoor (acquired in 2018) .
Key accounts and assumptions
Key accounts and assumptions (Company, Refinitive)
Our goals
We’re going back to our sales season from June 2021, and we’re excited to say that the values are fantastic with a 45% discount. The labor market has stabilized after the pandemic but fears of a recession remain. The recruitment industry continues to face long-term and structural challenges, such as an aging workforce, immigration movements, and attitudes towards work-life balance.
Basically, the investment in Recruit is a view of the international labor market, with a geographical focus on the US (about 30% of all sales) and Japan (about 45% of all sales) . The stock has more or less underperformed its peers, though direct competitors Adecco ( OTCPK:AHEXY ) and ManpowerGroup ( MAN ) have underperformed specialist firms. such as Heidrick & Struggles (HSII) and Robert Half (RHI). ).
In this section, we want to assess whether the shares are attractive based on this adjustment.
Integrated messages from the organization
Q1-3 FY3/2023 results send a mixed message to our outlook. For the online job listing business (HR Software – Pono and Glassdoor), although Q1-3 FY3/2023 sales are growing 38.4% YoY (page 10), sales are expected to decline in FY3/2024 and FY3 /2025, is a big mistake because it is the revenue driver for Recruit. Although management believes that the lack of international workers will open up jobs, the opposite is true. In the US, the first post-pandemic increase in job offers has stabilized, with levels back down to 2019 levels and the risk of a decline as the depression The outlook for Europe and Japan is bleak because this process of post-pandemic recovery has not yet taken place.
The only thing that a riposte organization can think of is to increase the turnover of goods. One of the main goals of businesses is to make job hunting easier and the job search process faster. Due to the decrease in job openings, the increase in turnover may have a short-term benefit to pay the income quickly but ultimately ignore the decrease in the products to be sold.
The negative outlook is exacerbated by the fact that the company itself has a price freeze and is slashing prices in areas such as retail. However, it is said to be investing in AI and Machine Learning to further automate manual tasks, although we believe there is a risk that too much automation will result in a poor customer experience. customers and the fall of user questions.
As a cyclical business, management can only respond to macro uncertainties. The bottom line is that even though job postings are down, Recruit wants to keep revenue levels up by increasing the wages they’re seeing. In the long term, due to shrinking global jobs, recruitment platforms need to be strong as companies rely on access to quality workers. However, in the short to medium term the business will remain on a production scale, which we believe will continue to decline.
The recent weakness of the Japanese yen will have a positive translational impact on FY3/3024 earnings from overseas sales, but given the limited positive effects from underlying factors, we do not expect to see a shock best from the company’s future leaders. The company will announce these on May 15, 2023 along with Q1-4 FY3/2023 results.
Increasing expenses in remaining business segments
Matching & Solutions is a domestic focus and has seen an increase in activity with Q1-3 FY3/2023 sales growing 16.6% YoY, particularly from the travel and restaurant industries. . Stronger-than-expected results have led to increased spending on strategic investments such as technology and advertising. However, with increasing signs of economic slowdown in 2023, business conditions are expected to change in FY3/2024.
Temporary staffing has seen growth in Japan, with Q1-3 FY3/2023 sales growing 16.8%. Overseas business sales increased by 19.4% YoY, but under revenue grew by 3.8% YoY. While revenue growth has been better than expected, margins are under pressure from rising costs and rising marketing expenses as competition heats up.
Overall, small business segments in Recruit are unlikely to increase significantly through FY3/2024, reflecting the outlook for key HR Technology.
Value
Market expectations are not high for the business, with consensus forecasts estimating a single-digit decline in annual revenue for FY3/2024 (see Key Revenue table above ). Yields are not very attractive on paper for a service business, with a PER of 22.6x and a free cash flow of 5.7%. However, operating margins are not stellar at around 10%, and ROE is expected to decline with a low profit of 0.7%, which is a little appealing at current valuations.
Problems
The biggest risk comes from the US economy – if the Fed starts to cut interest rates next year (as some expect), market confidence and job opening volumes will increase. began to rise from a genuine demand to counter a short-term reaction to the pandemic. .
Recruit can increase the cost of advertised jobs, and continuously increase the turnover of goods and automation.
The risk comes from global interest rates that remain higher than current market expectations. This will remain some ‘contradiction’ to increase business investment as well as wage activity.
Due to the downward pressure on prices, businesses may decide to post jobs on lower-cost sites or find alternatives such as free job listings and expert sites.
Conclusion
Recruit will continue to be a global powerhouse as an online platform, but the ability to generate organic growth is limited. After M&A and overseas expansion, there was no clear strategic plan to drive growth. Even with a net income balance sheet there is no need for new business expansion. The withdrawal should be frowned upon and the shares deemed worthless.
Editor’s Note: This article refers to one or more stocks that do not trade on the US stock exchange. Be aware of the problems associated with these trees.
