City Comment: Mixed picture obscures market reality

Although news flow surrounding Greece, Spanish banks and the broader Eurozone economy has remained resolutely negative over the past few weeks, much of the doom and gloom had already been anticipated by the stock market.
Fri, 15 Jun 2012 | By Kean Marden, head of business services equity research, Jefferies International
Although news flow surrounding Greece, Spanish banks and the broader Eurozone economy has remained resolutely negative over the past few weeks, much of the doom and gloom had already been anticipated by the stock market.

Consequently, many of you may be surprised to hear that the FTSE 100 index (which aggregates the shares prices of the largest 100 companies listed on the London Stock Exchange) has actually risen by 2% over the past fortnight. Nevertheless, sentiment remains understandably fragile.Most recruiter share prices haven’t deviated appreciably from this figure but it is worth highlighting a number of outliers. Underperformers are led by Robert Walters (-12%), Harvey Nash (-7%), Empresaria (-7%) and SThree (-6%), while Healthcare Locums (+9%) has sustained the positive run I noted in my previous column.

According to Colin Cottell’s press filings from the court room, a decision relating to the Bleasdale Employment Tribunal is expected this month and, with luck, Healthcare Locums can draw a line under this chapter and move on.

Recent data continues to point to a broadly flat/slightly weaker UK labour market at present. Manpower’s Employment Outlook Survey showed a modest 1% positive balance of employers intending to hire in the coming quarter. The May 2012 REC/KPMG ‘Report on Jobs’ contained the weakest rate of perm growth in five months and a sixth consecutive month of lower temporary placements.

Momentum in IT, pharma and resources remains strong but banking and finance is still weak (although some companies are still doing well, as a recent catch up with Dave Way, managing director of the ever impressive Marks Sattin, proved).

SThree provided the only trading update of note from the recruitment sector this week. Net fee growth faded from 15% in Q1 to 9% in Q2 but analysts were expecting a slowdown and the Q2 performance was better than our 6% forecast, mainly due to a robust contribution from temp staffing. Despite a solid quarter, management’s outlook comments were cautious in tone and stressed that the market is becoming more challenging.

If consultant headcount is a reliable indicator then the UK may be poised for a difficult few quarters – SThree’s UK headcount has fallen by 9% since December 2011 and could drift further in Q3.

Kean Marden, head of business services equity research, Jefferies International

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