Recruitment industry affected by deeply divergent trends - City Comment
24 July 2014
After a sharp pull back in early July, the FTSE100 index has firmed up over the past fortnight and now sits slightly below its 10-year high. On the other side of the Atlantic, US bourses continue to edge up, driven better than expected profit figures in the latest corporate quarterly earnings releases.
Thu, 24 Jul 2014 | By Kean Marden, head of business services equity research, Jefferies
After a sharp pull back in early July, the FTSE100 index has firmed up over the past fortnight and now sits slightly below its 10-year high. On the other side of the Atlantic, US bourses continue to edge up, driven better than expected profit figures in the latest corporate quarterly earnings releases.
But if you dig a little deeper, the constituents of the UK equity market have experienced deeply divergent trends since Easter. Construction, retail and leisure are all down and the only reason the overall market has progressed is due to the commodities (strong economic growth in China) and pharmaceutical sectors (takeover speculation).
Unfortunately, the recruitment sector sits in the former camp. This isn’t entirely unexpected and in last month’s column I highlighted an in-depth research note I published in May in which we turned more cautious on the outlook for recruiter shares. Since then, many share prices have pulled back by around 10%.
To be clear, we remain positive on the medium-term outlook for industry profitability but we were conscious that an awful lot had gone well over the last 12 months, and it was becoming increasingly difficult to identify an obvious area where investors’ expectations could be positively surprised.
Over the past fortnight, the downward drift has persisted. Main decliners include Hydrogen (-15% following a soft trading update due to delayed conversion of higher vacancies/interviews into placements), SThree -9% (under pressure after curmudgeonly analysts at a Swiss bank downgraded), USG -8% and Harvey Nash -7%.
The leader board is headed by Robert Half (+8% benefiting from the general outperformance of US recruiters currently), Staffline +7% (boosted by a more generous than expected dividend proposal) and Impellam +4%.
Trading updates this month have often repeated several common themes. Firstly, the French labour market remains difficult: white-collar temp is performing reasonably well but perm activity is subdued and the latest industry data from PRISME doesn’t augur well for blue-collar generalists. Secondly, German momentum has stalled a little after a post-election bounce. Thirdly, it has been difficult to sign off deals in Brazil during the World Cup.
Lastly, the UK market remains robust and many recruiters are now penciling in a prolonged period of headcount investment. The industry feels optimistic at the momentum and increasingly less fragile but the Bank of England needs to get the timing of its first interest rate hike right.
After a sharp pull back in early July, the FTSE100 index has firmed up over the past fortnight and now sits slightly below its 10-year high. On the other side of the Atlantic, US bourses continue to edge up, driven better than expected profit figures in the latest corporate quarterly earnings releases.
But if you dig a little deeper, the constituents of the UK equity market have experienced deeply divergent trends since Easter. Construction, retail and leisure are all down and the only reason the overall market has progressed is due to the commodities (strong economic growth in China) and pharmaceutical sectors (takeover speculation).
Unfortunately, the recruitment sector sits in the former camp. This isn’t entirely unexpected and in last month’s column I highlighted an in-depth research note I published in May in which we turned more cautious on the outlook for recruiter shares. Since then, many share prices have pulled back by around 10%.
To be clear, we remain positive on the medium-term outlook for industry profitability but we were conscious that an awful lot had gone well over the last 12 months, and it was becoming increasingly difficult to identify an obvious area where investors’ expectations could be positively surprised.
Over the past fortnight, the downward drift has persisted. Main decliners include Hydrogen (-15% following a soft trading update due to delayed conversion of higher vacancies/interviews into placements), SThree -9% (under pressure after curmudgeonly analysts at a Swiss bank downgraded), USG -8% and Harvey Nash -7%.
The leader board is headed by Robert Half (+8% benefiting from the general outperformance of US recruiters currently), Staffline +7% (boosted by a more generous than expected dividend proposal) and Impellam +4%.
Trading updates this month have often repeated several common themes. Firstly, the French labour market remains difficult: white-collar temp is performing reasonably well but perm activity is subdued and the latest industry data from PRISME doesn’t augur well for blue-collar generalists. Secondly, German momentum has stalled a little after a post-election bounce. Thirdly, it has been difficult to sign off deals in Brazil during the World Cup.
Lastly, the UK market remains robust and many recruiters are now penciling in a prolonged period of headcount investment. The industry feels optimistic at the momentum and increasingly less fragile but the Bank of England needs to get the timing of its first interest rate hike right.
