Robert Walters enjoys surge in UK profits

Financial recruitment agency Robert Walters grew net fee income by 5% during the second quarter to £53.9 million, or 12% at constant currency, driven largely by strength in the UK jobs market. It's the seventh quarter in a row of rising gross profits, and the company, which finds jobs for accountants and bankers, now expects full-year pre-tax profit to come in at the "upper end of market expectations."

Demand for accounting and legal roles in London and the regions is definitely hotting up, and UK profit surged by over a fifth to £17 million in the three months to 30 June. Europe remains a hard slog - France is particularly bad - but Spain is picking up and a profit of £10.9 million on the Continent is still slightly better than this time last year. Business remains slow in Australia, but Japan, Hong Kong, Malaysia and Thailand did well, and Asia Pacific - Walters' largest market - made £23.5 million during the period. That's a 9% increase at constant currency, although the strong pound meant reported profit there actually fell by 3%.

Investec is impressed. Ahead of half-year results out on 1 August, the broker has upgraded forecasts and now expects adjusted pre-tax profit of £12.9 million in 2014, giving adjusted earnings per share (EPS) of 10.3p, rising to £15.9 million and 12.2p in 2015.

Walters' share price has moved sideways since last autumn's stunning rally. But, significantly, it hasn't fallen below 300p, either, and the company's top brass are confident that business will improve. Last month they snapped up almost £300,000 of shares at 315p each.

The recruitment sector is highly cyclical, depending very much on a continued upturn in the global economy. Indeed, caution around the sustainability and speed of the economic recovery explains why the share price has moved sideways since last autumn's stunning rally.

Walters may be well-diversified, yet its financial well-being depends very much on the continued success of the finance industry and growth in the Far East. Yes, business is improving, but problem areas remain, and, at 318p, a forward price/earnings (PE) ratio of 31, dropping to a still substantial 26 for next year, prices in a lot of good news.