Profit-taking may soon be too tempting - City Comment

After a blistering start to 2013, equity markets have flat-lined over the past two weeks with the FTSE100 index up a measly 0.1%. Within the UK recruitment sector, the vast majority of shares have tracked the broader index and drifted sideways. Instead, the main price action of note this month has been among the second liners.
Thu, 21 Mar 2013 | By Kean Marden, head of business services equity research, Jefferies International
After a blistering start to 2013, equity markets have flat-lined over the past two weeks with the FTSE100 index up a measly 0.1%.

Admittedly, recent developments in Cyprus have been unhelpful and have revived painful memories of Eurozone meltdown, but share prices started to plateau weeks before this started to dominate the news. Instead, investors are pausing for breath on the sidelines, waiting to assess the pace of profit recovery that forward indicators of economic growth tell us should emerge soon.

Within the UK recruitment sector, the vast majority of shares have tracked the broader index and drifted sideways. Instead, the main price action of note this month has been among the second liners.

Notable movements include Hydrogen, which rallied by 10% following the release of well-received preliminary results despite an outlook statement that stressed that current trading was in line with expectations, and Matchtech (+8%) who were buoyed by a contract extension with BAE Systems and a new contract win with UK Power Network which marked the group’s first move into the utilities sector.

However, Empresaria heads the leader board after a 16% rally brought its year-to-date share price increase to an astonishing 78%. Here too, preliminary results were well received by investors and the board’s outlook comments stressed that a better performance was expected in 2013, despite uncertain global economic conditions.

This tone of cautious optimism was echoed in Manpower’s latest quarterly hiring intentions survey. The overall theme was that global economic challenges and uncertainty will continue to contribute to subdued hiring during Q2 but encouraging data was buried away within the report. Hiring prospects in Brazil (a large contributor for Michael Page) have considerably improved, there is “clear improvement” in Europe from three months ago and, within the UK, the recovery in public sector activity that has emerged over the past year looks set to continue (particularly helpful for Hays).

So, all signs point to an improvement trading momentum but to date most recruitment agencies have merely met analyst’s profit expectations rather than exceeding them. After a strong start to 2013, positive surprises are required for share prices to push on further from these elevated levels. If not, some investors will find it difficult to resist the temptation to take profits.

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