City Comment: Recruitment stocks miss out on summer upswing
24 August 2012
Traditionally, the summer months are the most difficult for equities. Yet, so far the old adage ‘sell in May and go away, come back on St Leger’s day’ has not proved to be a fruitful investment strategy.
Fri, 24 Aug 2012 | By Caroline de La Soujeole, industrial goods and services, equity research, Seymour Pierce
Traditionally, the summer months are the most difficult for equities. Yet, so far the old adage ‘sell in May and go away, come back on St Leger’s day’ has not proved to be a fruitful investment strategy.
Over the summer, the FTSE All Share has rallied by 10.5 %, admittedly on thin volumes. It reached 3,043.19 points on 14 August, a level not seen since April. The FTSE All Share reached a nadir of 2,732.65 points in early June, a seven-month low.
Recruitment stocks did not benefit from the stock’s market new lease of life. The Seymour Pierce Staffing Index underperformed the All Share by 10.1% over the past three months (see chart below). Among support services stocks we research, recruitment stocks have been the worst-performing sub-segment in that timeframe. Recent trading updates have given little cause to be cheerful, with the outlook still opaque for recruiters.
At its half-year update, Michael Page indicated that it anticipated “a challenging second half due to tough comparables and an ongoing backdrop of economic uncertainty”. Similarly, Robert Walters noted in its half-year results that “current trading remains difficult”. Hays will be releasing its full-year results next week and we expect a similar message.
However, amid this gloom some companies in our research coverage are bucking the trend. These tend to be smaller market capitalisation stocks which are strong operators in niche recruitment areas. For instance, Harvey Nash reported an encouraging 6% increase in net fee income in the six months to 31 July, driven by continued market share gains. Nakama, which recruits for the digital technology and interactive media industry, seems to have turned the corner, making an auspicious start to its new financial year.
In light of recent developments, our investment strategy remains the same. Investors will find better value in the lower end of the market capitalisation range.
Traditionally, the summer months are the most difficult for equities. Yet, so far the old adage ‘sell in May and go away, come back on St Leger’s day’ has not proved to be a fruitful investment strategy.
Over the summer, the FTSE All Share has rallied by 10.5 %, admittedly on thin volumes. It reached 3,043.19 points on 14 August, a level not seen since April. The FTSE All Share reached a nadir of 2,732.65 points in early June, a seven-month low.
Recruitment stocks did not benefit from the stock’s market new lease of life. The Seymour Pierce Staffing Index underperformed the All Share by 10.1% over the past three months (see chart below). Among support services stocks we research, recruitment stocks have been the worst-performing sub-segment in that timeframe. Recent trading updates have given little cause to be cheerful, with the outlook still opaque for recruiters.
At its half-year update, Michael Page indicated that it anticipated “a challenging second half due to tough comparables and an ongoing backdrop of economic uncertainty”. Similarly, Robert Walters noted in its half-year results that “current trading remains difficult”. Hays will be releasing its full-year results next week and we expect a similar message.
However, amid this gloom some companies in our research coverage are bucking the trend. These tend to be smaller market capitalisation stocks which are strong operators in niche recruitment areas. For instance, Harvey Nash reported an encouraging 6% increase in net fee income in the six months to 31 July, driven by continued market share gains. Nakama, which recruits for the digital technology and interactive media industry, seems to have turned the corner, making an auspicious start to its new financial year.
In light of recent developments, our investment strategy remains the same. Investors will find better value in the lower end of the market capitalisation range.
- Seymour Pierce acts as corporate broker to Nakama Group in the UK
