Expectations met, not exceeded as momentum improves - City Comment
18 April 2013
In my previous column, I suggested that although trading momentum was improving, so far most recruitment agencies had merely met analyst’s profit expectations and, after a strong start to 2013, positive surprises were required for share prices to push on further from elevated levels.
Thu, 18 Apr 2013 | By Kean Marden, head of business services equity research, Jefferies International
Within the UK recruitment sector, notable fallers include Empresaria (share price down -13%), which has succumbed to profit taking after an impressive 80% year-to-date rally, Michael Page [PageGroup] (-12%) following a weaker than expected Q1 trading update, plus Randstad (-9%) and Adecco (-8%).
The leaderboard is sparsely populated but includes the ever-volatile Healthcare Locums (+51%) together with Matchtech (+5%) and Hydrogen (+3%), which have both maintained impressive share price momentum over the past six months.
Trading updates from two sector heavyweights have been particularly notable this month, albeit for different reasons. During a week in which the nation has reminisced following the death of former Prime Minister Margaret Thatcher, maybe it was inevitable that echoes of the past would emerge in Hays’ results. It has been five years since the group referred to “good growth” in Yorkshire, Scotland and the Midlands. It has been almost three years since Hays has claimed “modest sequential growth” in the UK. And while it would be remiss of us to characterise this as a robust wave of recovery emanating out from the South-East, there is evidence that a patchy revival is underway. Management now expect profits to be at the top of the range of analysts’ expectations and we upgraded our forecast by 4%.
Conversely, Michael Page’s Q1 trading update disappointed and its 6.7% net fee decline was much higher than our 2.4% estimate. Interestingly, management reinforced Hays’ cautiously positive comments regarding the pace of UK recovery and also noted that activity in Southern Europe was improving. However, the rate of net fee decline quickened to -17% in France (from -12% in Q4 2012) and -27% in Germany (previously -17%). Michael Page’s operations are more perm-exposed here and consequently have been impacted by recent softness in business and consumer confidence.
So clearly this has been reflected in significantly divergent share price reactions? No. Hays are down 9% and Michael Page by 11% this week. Sometimes investors’ concerns about future economic growth can be overwhelming.
Within the UK recruitment sector, notable fallers include Empresaria (share price down -13%), which has succumbed to profit taking after an impressive 80% year-to-date rally, Michael Page [PageGroup] (-12%) following a weaker than expected Q1 trading update, plus Randstad (-9%) and Adecco (-8%).
The leaderboard is sparsely populated but includes the ever-volatile Healthcare Locums (+51%) together with Matchtech (+5%) and Hydrogen (+3%), which have both maintained impressive share price momentum over the past six months.
Trading updates from two sector heavyweights have been particularly notable this month, albeit for different reasons. During a week in which the nation has reminisced following the death of former Prime Minister Margaret Thatcher, maybe it was inevitable that echoes of the past would emerge in Hays’ results. It has been five years since the group referred to “good growth” in Yorkshire, Scotland and the Midlands. It has been almost three years since Hays has claimed “modest sequential growth” in the UK. And while it would be remiss of us to characterise this as a robust wave of recovery emanating out from the South-East, there is evidence that a patchy revival is underway. Management now expect profits to be at the top of the range of analysts’ expectations and we upgraded our forecast by 4%.
Conversely, Michael Page’s Q1 trading update disappointed and its 6.7% net fee decline was much higher than our 2.4% estimate. Interestingly, management reinforced Hays’ cautiously positive comments regarding the pace of UK recovery and also noted that activity in Southern Europe was improving. However, the rate of net fee decline quickened to -17% in France (from -12% in Q4 2012) and -27% in Germany (previously -17%). Michael Page’s operations are more perm-exposed here and consequently have been impacted by recent softness in business and consumer confidence.
So clearly this has been reflected in significantly divergent share price reactions? No. Hays are down 9% and Michael Page by 11% this week. Sometimes investors’ concerns about future economic growth can be overwhelming.
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