No light at the end of the tunnel for recruiters
Michael Page's quarterly numbers reveal no let up in the deterioration of employment markets around the globe
The recruiter this morning revealed a further deterioration in its markets, posting a 32.3% year-on-year decline in group net fee income (NFI) to £95 million in the first quarter—a decline of almost 40% in constant currency terms. Breaking the figures down by region, group profits were hit by 38.7% in the UK, 26.8% in Europe, 22.6% in the US and 42.3% in Asia Pacific, exemplifying just how universal this slowdown is. In addition, the group also revealed permanent placements were down 39.3% in the quarter while temporary contract fell just 7%, a sign that with the economic outlook so uncertain, employers are loath to issue permanent contracts, instead opting for short-term tie-in conditions.
Chief executive Steve Ingham sounded cautiously upbeat in his outlook statement, however, saying the group remains “confident that, with our strong balance sheet, leading brand and experienced management team, we can maintain our market presence and continue to gain market share."
Indeed, analysts at Panmure Gordon said this morning that Michael Page remains well placed for any economic improvement—they even suggested it could be the best-placed—but added that the fact remains there are few signs of the market even leveling off as yet, and the broker believes recruiters will be in for a difficult 2009.
Following today’s figures, Panmure said it has downgraded its full-year forecasts for Michael Page and now has the group breaking even over the year, although the analysts said that with the market contracting so fast they have little faith in these figures, which could slip into losses. The broker repeated its Sell advice on the stock and maintained its 94p per share target price—a long drop from the current price of 208.5p. Michael Page shares had slipped 3.6% from Monday’s closing price at last check on the back of today’s quarterly results.
Analysts at Altium Securities were similarly downbeat, telling investors in a note published this morning that April is likely to prove at least as bad as March for the recruitment firm as Easter falls during this month, compared with its March date last year. The broker noted that headcount at Michael Page fell a further 16% in the first quarter, down 809 to 4,134, which represents a 24% reduction year-on-year.
Altium concluded that, which mindful of the possibility of a takeover bid from Swiss peer Adecco, particularly following the change of senior management at the recruiter, it is sticking with its Sell recommendation on Michael Page and is holding its target price at 130p.
However, not all analysts were so restrained. KBC Peel Hunt said that with £3 million of operating profit for £95 million of net fee income, the company’s margins have come under pressure but that this is unsurprising given the natural lag between weak trading and cost reduction.
KBC said the group’s balance sheet and brand are still in tact—with £75 million on the balance sheet it sees no problems financially—and as such it reiterated its 240p target price and Buy recommendation.
“We believe that with its market presence, strong financial position and international brand in tact, Michael Page will be able to weather the downturn and emerge strongly into the next cycle,” the broker concluded.
