With earnings season well and truly underway, we’ve plenty to get our teeth stuck into. What’s been particularly interesting over the last few days are the differing reactions to updates from a trio of globally diversified recruiters.
Robert Walters (RWA) kicked us off with a bullish third-quarter update Tuesday. Yet another record three-month period saw net fee income grow strongly across all regions (+21% overall at constant currency), and led eponymous boss Robert Walters to declare that full-year pre-tax profit should beat market expectations.
The share price briefly poked its head above £6 for the first time ever, and currently trades almost 10% higher than Monday at 597p.
While RWA reported its UK business had grown strongly at 15%, PageGroup (PAGE) sounded a note of caution on the region amid Brexit and political uncertainty. Confidence levels amongst both clients and candidates have been negatively impacted, said chief executive Steve Ingram and Q3 profits from its UK divisions were down 7.6%.
While he said the outlook for full-year operating profit remains in line with consensus, investors worried about the outlook for the UK, sending shares in the opposite direction to RWA – down 10% to 473p currently.
Investors could be forgiven, then, for expecting the worst ahead of a first-quarter update from Hays' (HAS) Thursday, especially considering UK net fee income has declines for the past six quarters.
It was a relief to see a positive number in that column today, though, as the UK business returned to growth, albeit modestly at 1%. CEO Alistair Cox said market conditions in the UK “remain stable”.
Overall, net fees rose 10% at constant currency, ahead of both expectations (8.5%) and PageGroup (8.8%) but behind Robert Walters.
Having slipped a couple of percent ahead of the update, Hays shares are flat on the day at 190p, just shy of the 15-year high 199.9p hit eight days ago.
Our stockpicker Edmond Jackson has pointed out in the past that companies in this sector tend to be “classic momentum plays”; “fully-priced with regard to longer-term risks in the business cycle, but where news looks likely to remain positive”.
That certainly seems to be the case here, looking at broker target prices. Liberum, Panmure Gordon and Jefferies all have a figure of 195p on Hays; Investec is at 600p for RWA; and Investec wants 450p for Page, though UBS is more optimistic at 530p.
Forward earnings multiples for 2018 all look similarly chunky at 17.3 times for Hays, 16.4 for PageGroup and 16.6 for Robert Walters.
Both Edmond and technical analyst Alistair Strang called Hays up from 168p after a Q3 2017 update mid-April, with the former again noting “Hays and other recruiters should not nowadays be treated as long-term investments; instead momentum plays where you need to keep up with events”.
Having busted through its technical resistance level at 173p and stormed past Alistair’s initial target at 183p, the next level to look for with Hays looks to be the 214p “higher high”.
We also had a good word put in for Robert Walters from Panmure three months ago when around 450p – analyst Adrian Kersey called the stock up to £5. It’s had that and then some!
PageGroup, though, has traded flat at what looks a solid resistance level over the last six months having hit a 15-month high after its Q1 2017 update.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.