We published our quarterly review of the staffing sector last week in which we moved our sector stance to underweight.

The staffing sector is trading on a prospective P/E of 17.2x, which is too high in our view, given decelerating net fee income growth in recent quarters. Furthermore, our analysis of global recruitment trends suggests that we haven’t turned the corner yet. It is too early to buy the early cycle recruitment companies.

Staffing share prices have recovered some of their poise recently. Over the past month, the Seymour Pierce Staffing Index has just underperformed the wider market (FTSE All Share), declining by 0.5%. On a three-month and 12-month view, the declines were 2% and 4.6% respectively. The Small Capitalisation Staffing Index has seen a better performance in the month (+1.3%), although on a three-month and 12-month view has performed poorly (-6.3% and -17.8% respectively). 

This is exactly what we would expect in the early stages of a bull market with small capitalisation stocks lagging the larger capitalisation ones. However, based on our analysis of global recruitment trends, we believe this could yet be another false dawn with more downside to share prices. It is too early to call the bottom of the cycle in our view.

Although market sentiment has been bolstered by US Federal Reserve chairman Ben Bernanke’s promise to pump yet more money into the US economy, and Mario Draghi, president of the European Central Bank’s promise that he would do all in his power to support the euro, we remain cautious. While we may be getting close to the inflexion point for early cycle recruitment stocks, we are not quite there yet. Our review of a number of key labour markets (UK, Germany, France, Holland, APAC) shows little evidence of sustained improvement. Caution remains the watchword for both employers and employees.