Market Data 
Investing.com — JPMorgan on Thursday reinstated coverage on Adecco (SIX:) and Randstad (AS:), prominent names in the European Employment Services sector.
The firm placed Adecco shares on Negative Catalyst Watch ahead of the company’s full-year 2024 results, which are expected on February 26th, reflecting concerns over the staffing industry’s recovery prospects and Adecco’s performance relative to its peers.
The company’s shares fell 1.5% in European trading.
According to JPMorgan’s analysis, temporary staffing volumes have continued to decline across key regions, including France, Italy, and the United States. This trend drives a guarded view on the sub-sector’s potential rebound through 2025.
JPMorgan’s staffing tracker indicates that Adecco and Randstad are both tracking a roughly 4% decline in Q4-to-date volumes. Furthermore, the Indeed hiring index shows a double-digit percentage drop across France, Germany, the UK, and the US, which is expected to further impact gross margins.
JPMorgan expresses a preference for Randstad over Adecco, citing easier comparisons heading into 2025, higher exposure in the United States, and a stronger market position, which could provide a competitive edge. The firm also anticipates more room for Randstad to return excess capital to shareholders.
In contrast, Adecco faces several challenges, including the risk of a significant dividend cut, cautious market demand, and margins that remain below those of peers despite a cost-savings program that is reportedly on track.
The report highlights Adecco’s vulnerability due to high leverage, with net debt to EBITDA forecasted at 3.0x for the fiscal year 2024. This financial strain, coupled with weak staffing volumes, declining margins year-over-year, and the strengthening of the Swiss Franc, leads JPMorgan to anticipate a 50% dividend cut in fiscal years 2024 and 2025.
“Our sensitivity analysis suggests that leverage will not reach its mid-term target of <1.5x if the cash dividend is maintained,” analysts led by Karin So said.
“Our base case scenario of a 50% cut will de-lever to c.2.0x by FY26E, but if the recovery is slower than expected, we see a bear case scenario of a 100% cut for the next two years.”
On the other hand, Randstad’s balance sheet appears more robust, with net debt to EBITDA expected at 1.0x for the fiscal year 2024.
JPMorgan suggests that Randstad could potentially offer excess capital returns as it reduces its leverage.
