City Comment

12 May 2010

However, this year’s event was far more ebullient and it’s great to see the industry regaining confidence with Peter Searle (Adecco), Miles Hunt (Empresaria), James Stevenson (Morgan Hunt)and Dave Way (Marks Sattin) all enthusiastic about the future.

This tone resonated in company results announcements throughout the period. For example, in its Q1 results, Manpower noted that net fee growth in the US light industrial sector had accelerated from 31% in the first quarter to an astonishing 55% over the past four weeks. US light industrial is typically one of the earliest parts of the global labour market to emerge from recession, so it is closely monitored by investors.

Elsewhere, Q1 results from Randstad and Dutch recruiter USG People highlighted strong recovery in North America and Germany but much weaker momentum in The Netherlands. Coincidentally, Empresaria sold its Dutch subsidiary a few weeks earlier for a nominal sum (e1 or 87p) and completely exited the territory due to lacklustre growth.

Also in April, Hays hosted an analyst/investor seminar at which senior operational management outlined growth prospects for the next three to four years. The key development was Hays’ intention to ramp up international consultant headcount from 2,000 currently to 5,000/6,000 in 2014, which was far more aggressive than most had assumed. We continue to believe that the first upgrades to profit forecasts for two years will emerge over the next six months.

So, there have been few flaws in the global economic recovery thesis over the past few weeks. However, as we go to print, the Greeks are rioting, credit ratings have been downgraded in Portugal and Spain and share prices are tumbling. Although we are not claiming to have anticipated these events, we downgraded our recommendation on virtually all the European staffing agencies from Buy to Hold over the past month as we sensed there was limited short-term upside to share prices.

However, as we go to print, the Greeks are rioting, credit ratings have been downgraded in Portugal and Spain and share prices are tumbling.

Companies are generally more optimistic about growth prospects and hiring intentions now than they were six months ago. However, several European countries need to address their sovereign debt issues before confidence returns to equity markets.

Kean Marden is head of support services equity research, RBS Global Banking & Markets, The Royal Bank of Scotland