IT recruiters: is it good-bye or good buy?

Stan Beer
Sunday, 03 August 2008 15:23

IT People - Recruitment

"I think there's a couple of elements to it," says Mr Olivier.

"I would say that recruiters are the first to feel the economic pinch, so what do organisations do if the uncertainty of February and March is still continuing now? They don't sack staff, they don't close offices, they have to keep paying the rent, they have to keep on ordering stationery, but they put a squeeze on and say 'let's not hire unless we have to'. Recruitment gets hit first and is always first to rebound."

"However, it is true that recruiters are always small cap stocks. Even our largest recruiters are not the blue chip end of town. There is a dislike of these sorts of stocks in the portfolios of fund managers as they go for safety."

However, even Mr Olivier feels that there is an element of the recruitment sector being unfairly tarred with the risky small cap brush. He points to Talent 2 as a recruiter that has been punished severely by the market despite performing very well.

Talent 2 reported revenue for the financial year to 30 June 2008 up 49% to $229.0m, gross profit up 45% to $142.4m and EBITDA up 29% to $20.3m. Despite this, Talent 2 shares are down 57% from their high point a one year ago.

"There is a bit of irony really because if you look at Talent 2 they've reported extraordinarily good results in any time but in particular these times, yet their shares are down more than 50%. With Talent 2 it's very hard to justify given the strategy and the strength of the management," says Olivier.

"I think recruitment activity has decreased but that doesn't necessarily mean a bad market for recruiters because we've had an imbalanced market for the past four or five years where you could pick up a job anywhere but you couldn't find a candidate to fill the role. And now the market has cooled down there's a more balanced situation. However, the concern I have is that if candidates all go to ground because they're fearful of going to a new employer then we could have an unhealthy market."

According to Olivier, the IT recruitment sector may be more resilient than other recruiters because of its heavy emphasis on contracting rather than permanent placements.

"If you've got a thousand people out (contracting) in January 2008 and at the end of the year you've got 900, you've still got a very profitable business," he says.

"Maybe there's a certain amount of cream you can make out permanent but it really is a matter of when those people finish their contracts. So the turnover is really slow and IT recruiters don't feel the pain as much and it's not as accentuated as it is with the more generalist permanent oriented recruiters."

So if it is true that the recuitment industry is a proverbial canary in a coalmine for the wider economy as a whole, then what we are being told is that confidence is down but for the time being at least the fundamentals of our economy and outlook for IT jobs are sound. If the fundamentals remain sound - and that's a big if - then one day we may look back and think of this as a time when the better listed IT recruiters were a good buy.