City Comment

18 August 2010

However, with the Bank of England, the US Federal Reserve and numerous independent economists all downgrading their economic growth expectations recently, the equity market is in a particularly sensitive mood and analysts are assiduously probing for signs of a slowdown. Press articles frequently speculate over the prospects of a double-dip recession.

The management teams at Manpower, Adecco and SThree have all communicated a consistent message in recent updates. Manpower have “not felt any slowdown as we enter the third quarter” and their clients still have full order books and “are feeling good about Q3”. Adecco stressed that “developments in the staffing industry continue to signal healthy demand and management is confident of strong revenue development near term”. Even more positively, SThree’s net fee growth accelerated from -12% in May to +15% in June.

So all seems well. However, equity markets are extremely nervous and volatile (yet again!) for two reasons. Firstly, investors fear that, if economic growth forecasts are being lowered, a slowdown in recruiter net fees is imminent and consequently profit forecasts for 2011 and 2012 will need to be downgraded. Secondly, even if month-on-month growth rates remains positive, the year-on-year growth rate has started to peak as comparables become more difficult (for example, Adecco’s revenue growth stabilised at 16% in June and July after several months of sustained acceleration).

As we have mentioned in previous columns, another issue which has weighed on confidence since the spring is the outlook for public sector spending, particularly after Francis Maude (cabinet secretary) made some pretty frank comments following meetings with the government’s top 20 private sector suppliers. Pessimists were further encouraged by a surprise profit warning from Cable & Wireless (one of the 20 suppliers) in July.

Finally, Hays announced this month that Bob Lawson will retire as chairman following the Annual General Meeting on 10 November. Bob was a steady hand at the tiller as Hays was refocused onto Denis Waxman’s staffing business in the mid-2000s and has been a supportive servant of employees and shareholders for 12 years. Hays’ analyst meetings won’t be the same without him.