Before the Bell: Turbulence in the Staffing Sector

Market optimism continues, but Adecco takes a hit at its Investor Day.

Both the S&P 500 (+0.7%) and Nasdaq (+0.8%) managed to close higher again on Wednesday. Boeing (+2.5%) rose even more, as did Walmart (+2%), Microsoft (+1.8%) and Nvidia (+1.4%). This time Europe performed even better, with the Euro Stoxx 50 gaining 1.5%. The European index owed its advance mainly to ASML (+5.7%). Novo Nordisk (+4.7%) also delivered a strong session, as did ThyssenKrupp (+5.8%) and Commerzbank (+5.8%). In Brussels, the Bel20 rose by just half a percent. Solvay (-2.4%) gave back what it gained the day before, while D’Ieteren (+3.4%) and Melexis (+2.6%) were among the strongest risers.

In Tokyo, the Topix index is up 0.4% this morning. The Nikkei does even better, rising 1.1%. Chip-testing companies Advantest (+4.6%) and Lasertec (+3.8%) are among the top performers. In Hong Kong, shares are up around 0.3%. China Taiping Insurance fell 8% earlier today — it is the insurer of the building that suffered the city’s worst fire in decades yesterday. By midday, the stock had recovered to -1.4%. In the U.S., there are essentially no earnings releases today due to Thanksgiving. In the eurozone, the consumer and business confidence survey will be published at 11:00.

What should you do with insurance stocks after major disasters?

In June 1996, Distrigas came to the stock market at 28,000 Belgian francs per share. I subscribed. Against expectations, the share price of this “boring” utility performed remarkably well. In 2001, shareholders received a share of Fluxys for every Distrigas share they owned. Both companies continued to perform strongly on the stock exchange. By September 2004, Distrigas was worth 1,648 euro per share and Fluxys 1,600 euro. The initial investment, equivalent to 694 euro, had risen by 368% in just over eight years — and both companies also paid handsome dividends every year! I sold my shares a bit earlier, on 30 July 2004, the day of the gas explosion in Gellingen. I shouldn’t have. The shares kept climbing afterwards. Insurers paid for the damages. And even insurance stocks shouldn’t be sold during a major disaster. Insurers are extremely professional: they diversify and reinsure their risks. Just like any good investor, they understand the value of spreading risk. Don’t underestimate them.

Not a fan of temporary staffing

On the Swiss stock exchange, Adecco was hit hard — the share fell 11.4% after management warned of a dividend cut during the company’s Investor Day. In theory, an Investor Day is meant to talk the stock up, but I can appreciate the Swiss straightforwardness. You shouldn’t try to make something crooked look straight. Adecco still expects to achieve an EBITA margin of 3% to 6% this year, as previously guided, and aims to reduce its net debt ratio to 1.5× EBITDA by the end of 2027. But shareholders clearly prefer their dividends — and those won’t be maintained, as the company needs to use cash to reduce debt. That is entirely logical. Investors, however, assume something more is going on. Be careful: I am currently ab-so-lu-te-ly not a fan of the staffing sector. Companies are only just beginning to cut back on personnel. That is a terrible environment for players like Adecco and Randstad. My advice: don’t buy.

Did you know…

Adecco was created in early 1997 through the merger of Swiss company Adia Interim and French group Ecco? The company now employs 35,000 people worldwide — and in turn helps 600,000 temporary workers find a job.

This article was translated from Dutch and was originally published on Spaarvarkens.be.