Investment: Can Select keep up the pace?

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Investment: Can Select keep up the pace?

THE PERFORMANCE of the recruitment company Select Appointments has defied belief in recent years. Its shares have doubled in the last year and risen by a factor of 20 in the last five years.

The company is now valued at over pounds 1bn, which stretches credulity for a business that yesterday reported first-half profits of $20m, even if the figures were up nearly 70 per cent on the previous year. Select is now reporting in dollars after its listing in America earlier this year, which raised pounds 102m and the switch to US accounting regulations also means it has scrapped its dividend.

The question for investors, of course, is: can the company keep up this pace?

The City certainly seems supportive, marking the shares up another 12.5p to 1019p yesterday. Analysts like the wide geographic spread and Select's strategy of avoiding low-margin, high-volume contracts.

Like all recruitment companies, Select claims to be protected from a downturn. It has certainly been acquisitive, buying eight businesses so far this year, and now has operations in 22 countries and 17 different sectors including IT, legal, administration, financial and healthcare. Only 5 per cent of its business is in permanent jobs, which are more sensitive to economic fluctuations.

Operating margins rose from 5.3 per cent to 6 per cent and large parts of its office network have been open for less than three years, meaning they have yet to reach optimum performance.

It all sounds very gung-ho but the fact remains that recruitment is a cyclical sector whose assets - its staff - can walk out of the door. On full-year forecasts of pounds 50m, the shares trade on a forward multiple of 34. Though the record is hard to fault, that looks quite high enough for now. And after the run of the last few years there has to be an argument for taking profits.