Despite predicting tougher trading conditions in the UK over the next few quarters, the ‘big four’ recruiters — Hays, Michael Page, SThree and Robert Walters — are relatively well placed, according to the latest support services sector outlook from Shore Capital.

In its latest outlook, analysts David O’Brien and Robin Speakman explore the implications of a slowdown in GDP projections in the UK, US and weaker country members of the EU.

“The positive news is that none of the ‘big four’ recruiters has more that c37% of net fee income (NFI) derived from the UK — SThree being the highest — and, owing to the stronger growth seen in developing nations (where there are structural drivers), the UK is increasingly becoming less significant to the aforementioned staffing agencies.

In addition, the rise of recruitment process outsourcing in the more mature nations (UK, US, Australia and the Netherlands) is driving down returns/average fee rates in those markets…

“We retain a preference for quality in general and strong finances, with the ability to continue to fund growth opportunities as they emerge and dividend flows from balance sheet and free cash-flow strength.

On outsourcing groups, Shore Capital says: “It remains cautious on the outlook, and that previous optimism of growth and longer-term expansion may be unfounded.

“We believe that there is a material risk that renewed fiscal constraints in both the private and public sector may yet dash these hopes, bringing an extension of the painful hiatus experienced over the past two years…

“We also perceive a potential danger in companies responding late to changing client demands in outsourcing. The focus for a long time has been on efficiency of existing service delivery, rather than wholesale service re-design (or elimination) for lower costs.

“Essentially, we are concerned that the market is moving to demanding a partnership model in future, rather than outsourcing per se. This may have implications for service construction in the future, demanding the greater use of joint ventures with clients — holding financial resources and the benefit of cost savings within for distribution between the client and the service partner.”