Fri, 10 Aug 2012 | By Kean Marden, head of business services equity research, Jefferies International
The FTSE100 index has rallied by 6% over the past fortnight to a four-month high
as investors begin to sense that a rescue framework is slowly being constructed in Europe. The sceptics can and will still point to the lack of a detailed action plan, but it is interesting to note that the Eurozone share prices rebounded hardest in July.
Economic data showed that major economies are still struggling to regain momentum and some businesses, including several recruitment agencies, reported a sharp slowdown in June. Investors are fully aware of the risk to near-term earnings forecasts and the overall market has coped well thus far with an inevitably tricky first-half earnings season.
Given the deteriorating economic outlook, it is no surprise that economically defensive sectors remain in favour but some cyclical stocks had a good July supported by in line first half trading and reassuring outlook comments.
However, where earnings were missed companies were punished, particularly in the metals and mining sector which was a material underperformer in July.
Despite rising equity markets, recruiter shares mostly declined with the main outliers including Healthcare Locums -26% (disappointing trading statement), Empresaria -10%, InterQuest -9% and Robert Walters -6% (despite reporting in-line interim results).
As we touched on above, several companies have updated investors over the past few weeks. Pre-tax profit at Robert Walters was £3.1m in the first half and, although current trading was described as difficult, most analysts left their 2012 profit forecasts unchanged. Elsewhere, Matchtech noted that 2012 profitability would be at the lower end of the range of analysts’ expectations due to soft perm fees in Q4. InterQuest flagged that conditions had deteriorated since the start of the year both in the UK and Far East, and especially in banking and finance.
On that topic, I was intrigued by financial recruiter Astbury Marsden’s recent report that the number of new City jobs stabilised in July
after a slump in June. According to Mark Cameron, “we’re not expecting things to improve dramatically this year”. I’d agree but I’m fearful of another lurch downwards in late summer/early autumn, particularly as industry headhunters are speculating that UBS will announce another 2,000 redundancies over the next few weeks.
Kean Marden, head of business services equity research, Jefferies International