Smaller agencies prosper as large caps falter - City Comment
11 April 2013
Over the last month the UK’s three largest quoted staffing agencies (Hays, Michael Page International* and SThree) have retreated 8%. That is twice the fall in the market.
Thu, 11 Apr 2013 | By Adrian Kearsey, equity analyst, Hardman & CoOver the last month the UK’s three largest quoted staffing agencies (Hays, Michael Page International* and SThree) have retreated 8%. That is twice the fall in the market.
Michael Page experienced the largest share price decline, down 14.2%. The retreat partly reflects equity market concerns over the Eurozone. However, investors had also priced in earnings upgrades for the larger names but this enthusiasm was likely to prove premature. Even after the retreat in the share price, Michael Page is trading on a price earnings ratio of 20.6x. This is twice the market average. Despite this enthusiasm, earnings forecasts have been revised down around 30% over the past 12 months (source: Reuters). That is a big downgrade by any standards. More importantly, given the macro environment, a significant turnaround in trading appears unlikely.
Despite the market turbulence, some of the smaller staffing agencies have continued to see share price gains. Over the last month one of the outstanding performers is Matchtech (shares +25.4%). Investor interest has been driven by a strong operational performance and an attractive valuation.
Matchtech has reported that “skill shortages are driving unprecedented demand for contract staff in [their core] markets”. Engineering and technology sectors remain the key drivers, with UK clients supplying skilled staff both domestically and overseas. Oil & gas (especially offshore), infrastructure, marine and science are all benefiting from strong underlying growth drivers. Contractor numbers have increased 14% over the last 12 months, continuing a strong trend over recent years. Investors are starting to wake up to this positive performance. However, the shares are still trading on a 41% discount to its larger peers.
Elsewhere, in the small caps we have seen a good performance from Empresaria. Although the shares have paused for breath over recent weeks, they are up 63% since the beginning of the year. FY2012 results demonstrated improved profitability, with underlying operating profit jumping +57% to £4.4m. More importantly, the legacy issues in Germany (surrounding equal pay) have been fully provided for and the loss-making business in Chile has been replaced. This leaves management free to focus on building the business, especially in Asia Pacific. While the shares have moved materially higher, the price earnings multiple is still 73% lower than that of the larger stocks, making it worth a look at. This trend has been maintained, with temporary staff NFI +14% year-on-year during Q2 (vs 16% Q1 2013).
(*Michael Page International retains its current name on the stock market, even though it rebranded to PageGroup last October.)
Michael Page experienced the largest share price decline, down 14.2%. The retreat partly reflects equity market concerns over the Eurozone. However, investors had also priced in earnings upgrades for the larger names but this enthusiasm was likely to prove premature. Even after the retreat in the share price, Michael Page is trading on a price earnings ratio of 20.6x. This is twice the market average. Despite this enthusiasm, earnings forecasts have been revised down around 30% over the past 12 months (source: Reuters). That is a big downgrade by any standards. More importantly, given the macro environment, a significant turnaround in trading appears unlikely.
Despite the market turbulence, some of the smaller staffing agencies have continued to see share price gains. Over the last month one of the outstanding performers is Matchtech (shares +25.4%). Investor interest has been driven by a strong operational performance and an attractive valuation.
Matchtech has reported that “skill shortages are driving unprecedented demand for contract staff in [their core] markets”. Engineering and technology sectors remain the key drivers, with UK clients supplying skilled staff both domestically and overseas. Oil & gas (especially offshore), infrastructure, marine and science are all benefiting from strong underlying growth drivers. Contractor numbers have increased 14% over the last 12 months, continuing a strong trend over recent years. Investors are starting to wake up to this positive performance. However, the shares are still trading on a 41% discount to its larger peers.
Elsewhere, in the small caps we have seen a good performance from Empresaria. Although the shares have paused for breath over recent weeks, they are up 63% since the beginning of the year. FY2012 results demonstrated improved profitability, with underlying operating profit jumping +57% to £4.4m. More importantly, the legacy issues in Germany (surrounding equal pay) have been fully provided for and the loss-making business in Chile has been replaced. This leaves management free to focus on building the business, especially in Asia Pacific. While the shares have moved materially higher, the price earnings multiple is still 73% lower than that of the larger stocks, making it worth a look at. This trend has been maintained, with temporary staff NFI +14% year-on-year during Q2 (vs 16% Q1 2013).
(*Michael Page International retains its current name on the stock market, even though it rebranded to PageGroup last October.)
