A Brief Comparison Between Randstad and Adecco

Comparison between Randstad and Adecco on a number of qualitative and quantitative metrics. 

Many investors focused on dividend growth are likely acquainted with the HR service providers Automatic Data Processing (ADP) and Paychex (PAYX), both of which boast impressive track records of increasing dividends. ADP stands out with a streak of 49 consecutive years of dividend growth, positioning it near the threshold of achieving Dividend King status.

However, the appeal of these companies extends beyond their dividend performance. Over the past decade, both ADP and Paychex have delivered robust total returns, outperforming the S&P 500 index by a significant margin. Despite their performance, it’s worth noting that these companies are currently trading at elevated valuations, prompting caution for investors considering initiating positions in them at present.

In light of this, attention has turned to European counterparts, which are trading at comparatively lower valuations. Specifically, two notable contenders are Randstad N.V. and Adecco Group AG, offering intriguing alternatives for investors seeking exposure to the HR services sector.

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Overview of Companies:

Both Randstad N.V. and Adecco Group AG operate within the human resources and employment services industry, offering similar solutions such as temporary staffing and permanent placement services. Essentially, their core function involves connecting talent (individuals seeking work opportunities) with client companies. For instance, Randstad boasts approximately 75 million talent profiles on its platforms and collaborates with around 100,000 customers. While both companies provide training and consulting solutions, their primary point of differentiation lies in the markets they serve. Randstad, headquartered in the Netherlands, targets a broad spectrum of markets, although it faces competition from both large and small-scale competitors. Adecco, a Swiss-based company, primarily operates in markets such as Spain, France, Italy, Switzerland, the UK, Sweden, Norway, Mexico, Chile, and Argentina.

Brand Strength:

Despite operating in an industry with relatively low barriers to entry and facing significant competition, Randstad and Adecco possess certain competitive advantages stemming from their scale and brand recognition. Based on Google Trends data, Randstad appears more relevant in markets like the United States, Canada, Germany, India, the Netherlands, Brazil, and Australia, while Adecco garners more traction in markets such as Spain, France, Italy, Switzerland, the UK, Sweden, Norway, Mexico, Chile, and Argentina. However, Adecco has experienced a decline in search interest over the past two decades, whereas Randstad’s interest remains relatively stable. Furthermore, statistics from Similarweb indicate that Randstad enjoys more favorable metrics, including increased website visits and longer average visit durations.

Employee Engagement:

Employee engagement is crucial in the services sector to maintain service quality. Adecco receives a Glassdoor rating of 3.7/5.0, with a CEO approval rating of 70%, and 66% indicating they would recommend the company. In comparison, Randstad’s ratings are slightly better, with an overall rating of 3.8/5.0, 76% approval for the CEO, and 75% indicating they would recommend the company. Both companies have room for improvement in their employee satisfaction ratings.

Growth:

Randstad demonstrates higher revenue growth compared to Adecco, attributed to factors such as website visits, search volumes, and employee engagement. Randstad has delivered an average annual revenue growth rate of 3.6%, while Adecco has experienced stagnant growth, nearing 0%. Additionally, Randstad has shown meaningful growth in normalized earnings per share over the past decade, whereas Adecco’s earnings have declined.

Balance Sheets:

Randstad exhibits a stronger financial position compared to Adecco, with lower leverage and better interest coverage. Randstad’s financial debt to EBITDA ratio is less than 1x, while Adecco’s ratio exceeds 4x. Similarly, Randstad’s interest coverage stands at roughly 13x, whereas Adecco’s is 7.4x.

Outlook:

Both Randstad and Adecco are sensitive to economic conditions, with their revenue growth closely tied to factors such as the PMI manufacturing index. While economic conditions are currently challenging, an uptick in the PMI index, particularly in the United States, bodes well for both companies. However, investors should be prepared for the cyclicality inherent in their financial results.

Valuation:

Randstad trades at relatively lower valuation multiples compared to US-based peers such as ADP and Paychex. Despite being a European company, Adecco commands higher multiples than Randstad, potentially attributed to factors such as its Swiss origin and higher dividend yield.

Risks:

Both companies face significant risks due to their exposure to economic conditions, particularly in the job market. Adecco, with higher leverage and stagnant growth, carries additional risk compared to Randstad.

Conclusion:

In conclusion, Randstad emerges as the preferred investment choice based on the qualitative and quantitative metrics analyzed. Despite operating in a challenging industry, Randstad has demonstrated growth in revenue and earnings per share, positioning it as a ‘Buy’. Adecco, while offering a higher dividend yield, is rated as a ‘Hold’ due to its stagnant growth and higher risk profile. Investors may find value in exploring these European peers given the significant valuation gap compared to their US counterparts.

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