Net profit at recruitment agency Cpl Resources was static year-on-year for its financial year ending June 2015. Though revenue and gross profit advanced in the year, so did overheads, up 11%.

In the year to June 2015, Cpl increased revenue by 7% to €394m, and gross profit rose by 7% to €59m. Operating profit was €14m, down from €14.2m.

Chief executive Anne Heraty explained: “In the first half of our financial year we made a number of investments, expanding the hub in Krakow, new head office facilities and upgrading some of our systems. Our operating profit in the second six months is up 34%.”

Heraty added that Cpl’s priorities for 2016 will be to stay focused on growing net fee income and profit before tax while expanding the group’s footprint in the UK and internationally.

The company has announced a bolt-on UK buy, Clinical Professionals, an agency with a focus on pharma life science recruitment, with offices in Reading and London. Cpl has acquired 90% of the business and 63.5% (€5.1m) of the potential total consideration payable was paid at completion. The balance is contingent on certain earn out targets being achieved.

In Association with

Heraty said that Ireland’s labour market is continuing to improve. The number of people employed grew by 1% quarter on quarter in Q2 2015, one of the fastest rates of growth since the start of the recovery. The unemployment rate has dropped to 9.5% in July 2015, its lowest level since December 2008.

Two Speed Market

“We are now seeing a two speed labour market where there are shortages of highly skilled professionals in certain sectors and a high rate of unemployment still persisting across certain parts of the labour market,” said Heraty.

“Many of the skills shortages are in sectors where Cpl have a strong presence such as ICT, Healthcare, Pharmaceutical and Finance. Companies in these sectors are looking internationally for talent.

“In the first nine months of 2014 approximately 4,100 new employment permits were issued in Ireland, an increase of 34% on 2013. The increase was mostly due to an increase in the number of permits issued to IT workers, but also due to the reintroduction of medical employment permits. The IT sector accounted for 43% of all new employment permits issued in 2014, with a further 25% issued to the healthcare sector.”

In 2014 Cpl opened a sourcing hub to locate people with hard to find skills. There are 13 recruiters employed in the hub. “The sourcing hub gives us a competitive advantage when designing solutions for clients who have difficulty accessing scarce skills or who need to hire teams rapidly,” said Heraty.

“While we have limited visibility particularly in our permanent placement business we believe our recent investments position us well for the future.”

Earnings per share was 40.2 cent (2014: 40.7 cent). At 30 June 2015, the net cash balance was €30.5m. Trade and other receivables grew to €81.8m in 2014/15 from €70m the previous year.

The final dividend is 5.0 cent per share, for a full-year dividend of 9.75 cent. That's a yield of 1.7% at the current share price of 575c.

Davy analyst Ross Harvey commented: “After the operational investments of H1, strong momentum was evident in the permanent business which saw a meaningful acceleration from the growth of H1 (+11%) to H2 (+20%).

“Although aided somewhat by continued GBP strength, the international side of the business was the standout performer (c.27% growth yoy), driven in particular by Healthcare in the UK, where the company continues to capitalise on robust demand to fill permanent nursing positions.

“Cpl’s FY 2015 results included two key elements: strong momentum from H2 and a prudent and accretive acquisition, which have prompted us to upgrade our FY 2016 forecasts by 6%. We think that a P/E multiple of 14.4x on our FY 2016 estimates materially understates the company’s strategic positioning and earnings potential (peers Hay and Michael Page are on 21x)."

Better Outlook

Analyst Darren McKinley at Merrion Stockbrokers said Cpl’s outlook outlook is better now than for some time, as permanent placements grew by 16% in H2, and now represents over 40% of CPL’s business mix, improving margins overall.

“We continue to recommend to ‘Buy’ the stock as it trades on 12.5x 2016 earnings,” said McKinley. “The sell-off in Cpl’s share price last January was driven by concerns that net profit margin was under pressure due to increased levels of competition.

“H215 result will give assurance to investors that the dip in operating margins now looks like a one-off and that further margin expansion is plausible. We expect free cash flow to increase and management to raise Cpl’s dividend at a rate above earnings growth in 2016.

“If we forecast a 40% pay-out ratio, then CPL could yield 3.3% in 2016. The current share price is below our March 16 fair value of €7.35.”