Brokers' Views – Seymour Pierce

Seymour Pierce analyst Kevin Lapwood sees a ‘genuine paradox’ in the fact that ‘as unemployment continues to rise and the news from staffing markets gets worse’ share prices in the recruitment sector continue to ‘outperform’.

While recovery in employment markets ‘may well be some way off’, recruitment shares are ‘increasingly anticipating the upturn’, he says. He adds that in the past ‘staffing shares have typically responded five to eight quarters ahead of a resumption of positive GDP growth or a change in other industry indicators, which could indicate a start to the positive phase of the next cycle in the second quarter of 2009.’

Big is beautiful

The worst recent performers have been the smaller players such as Work Group, Morson and Networkers International. Faring better have been the likes of cash-rich IT specialist Spring (a hold) and Healthcare Locums, downgraded from buy to hold, but only after a strong run-up to the brokers’ 150p target price.

At 158.5p, Matchtech offers resilience due to its exposure to the public sector and professional temporary recruitment and is a buy with a 240p price target.

Among the ‘majors’, Seymour Pierce is bullish about Hays on valuation grounds, though Michael Page is preferred ‘as a stronger play’. Despite its December profits warning and a difficult outlook, Page’s present valuation – £635 million at a share price of 199.25p – offers a buying opportunity as the company ‘has plenty of scope’ to manage its cost base down and ‘substantial’ cash balances.