Robert Walters could jump by a fifth

Just three months into the current financial year and recruitment firm Robert Walters reckons 2015 will be better than expected. That's sparked a round of earnings upgrades and propelled the shares to their highest in almost eight years.

Net fee income, or gross profit, jumped by 15% at constant currency in the three months ended 31 March to £53.9 million. Add in foreign exchange fluctuations and profit rose by a still impressive 12%.

"The strong growth in net fee income, coupled with our ongoing focus on increasing consultant productivity has enabled the group to continue to benefit from operational gearing," said CEO Robert Walters. "The board is therefore confident that profit for the year will be ahead of current market expectations."

Panmure Gordon has upgraded forecasts by 7% in response. The broker now expects Walters will make adjusted pre-tax profit of £21.3 million this year, £1.4 million more than previously thought and up from £18.2 million in 2014.

That puts Walters shares - up 5% at 378p on Wednesday - on a forward price/earnings (P/E) ratio of 22.4, falling to 19.7 in 2016. "On a simple P/E basis the shares are looking fully valued," says Panmure. "However, given the net fee income growth and the now well entrenched earnings momentum the shares are on an attractive PEG of 0.7 and we are raising our 12 month target price from 353p to 450p."

There was growth across the board, both geographically and in terms of both permanent and temporary jobs. Profit jumped by 8% in Asia Pacific to £21.2 million and by 22% in the UK to £18.6 million, driven by a broad-based upturn in permanent recruitment activity across both London and the regions.

Walters made £11.1 million in Europe during the quarter, up 12% at constant currency, but just 1% if you factor in recent euro weakness. However, other international markets - US, Middle East, South Africa and Brazil - made an extra 44% profit at constant currency, up by £1.1 million to £3.1 million. The US continues to grow strongly, while the Middle East more than doubled net fee income year-on-year.

"The group has real strength, depth and diversity in terms of geography and discipline and it has been very pleasing to see excellent results from both our established and emerging recruitment businesses and from Resource Solutions, the group's recruitment outsourcing business," said Walters.

"The strong growth in net fee income, coupled with our ongoing focus on increasing consultant productivity has enabled the group to continue to benefit from operational gearing."

The firm, which finished the period with £13.7 million of net cash worth 17p a share, will publish a second-quarter update on 7 July.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.