MPI

The outlook for listed recruitment companies has worsened after Michael Page (MPI), the UK market leader, confirmed a bleaker outlook for banking jobs. The shares across the sector fell sharply on Monday (7 April), despite Page saying that overseas business continues to perform well. Upbeat outlook statements have also been made in the past month from quoted IT and technical staffing agencies.

Page said it would scale back expansion plans for serving financial industries. Outside of the UK, it said operations in Tokyo were most affected by the slowdown in banking activity. Gross profit in Asia grew by 11% in the first three months of 2008, with Toyko’s slowdown offset by gains in China including Hong Kong.

Group-wide gross profit increased by 33% to £140.3 million. This figure would have been 23.8% in constant currencies, but Page benefited from a strong euro against the pound. The UK profit rose by 7% to £47.1 million. This increase was considerably less than the 16% growth seen in the fourth quarter of 2007 because of the banking slowdown.

Shares in Page fell 5% to 111.75p on the trading update. Sector peers Hays (HAS) slipped 6%, Robert Walters (RWA) traded down 4% to 159.75p and SThree (STHR) retreated 4% in response. ‘The recruitment industry has very little visibility and there is clearly considerable uncertainty over the short-term outlook, given the general economic environment. Nevertheless, we regard Page as very well managed and well placed to ride out any short-term issues for the industry,’ says Investec analyst Robert Morton.

Negative sentiment towards banking has dragged down the wider staffing sector. Agencies serving industries such as construction, IT and engineering continue to report rising earnings but their share prices remain under pressure. IT staffing group Interquest (ITQ:AIM) said in March that ‘IT has become a business imperative that defies traditional staffing cycles’ and that it continues to see rising demand for skilled workers in this sector.

Adrian Gunn, managing director of Matchtech (MTEC:AIM), which places engineers into infrastructure jobs, claimed that investors did not listen to non-banking recruitment companies and their reassurance over ongoing solid trading. Morson (MRN:AIM) last week said that it is forecasting sustainable growth of supplying skilled technical staff into defence, nuclear, power and rail positions.

Shares says: Analysts may say staffing groups look cheap but sentiment will continue to weigh down shares until the economy strengthens. Hold all recruitment stocks. It’s a waiting game.

by: Dan Coatsworth