US Edition Michael Page
218¼p -16p
Questor says Sell
As the credit crisis continues to escalate, companies are doing everything to keep costs under control – including slashing jobs.
The various predictions of how many people stand to lose their job as the economic slowdown bites are frightening. Management consultancy Hay Group has forecast that more than 100,000 banking and finance jobs will be lost in the next year and the CBI estimates that UK unemployment will rise to its highest level in over a decade by the year end.
Despite this gloomy outlook, recruitment agency Michael Page has been remarkably resilient. The FTSE 250 company specialises in finding jobs in a variety of sectors such as banking and financial services, sales and marketing, legal and human resources.
In yesterday’s third-quarter trading update, it described market conditions as “increasingly challenging” . This is particularly evident in the UK, where gross profits tumbled 8.3pc to £44.9m – prompted by a 15pc fall in profits from the finance and accounting sectors.
However, Michael Page has wisely been attempting to diversify away from just one economy. Almost 70pc of its profits are now generated outside the UK and it is present in 28 countries.
Some of these overseas markets are proving more sturdy than the UK, with its largest region – Europe, Middle East and Africa - recording a 31.8pc rise in third-quarter profits to £63.7m.
Michael Page is pretty much flat since Questor last advised investors to hold on to the shares in January. Since then, the recruitment agency has been the subject of a 400p-a-share approach from Swiss rival Adecco. Adecco withdrew its £1.3bn approach last month, although Michael Page still insists the deal “materially undervalued the company and its prospects”.
Chief executive Steve Ingham is convinced his company will be above that 400p level in “a few years” as he is confident the group “can maintain the dividend through the cycle”.
In the long-term, Michael Page should recover but recruitment is a cyclical business and the industry is likely to get tougher before it improves. France, another key market for the group, is already in recession and many other countries are likely to follow in its footsteps.
Michael Page has been resorting to the tactics of all companies – cutting headcount for the group as a whole by 84 to 5,452 over the last quarter. But the fact that it is braced to continue slashing its own staff numbers clearly indicates it is cautious about the future. With the shares yielding a modest 4.1pc, until the economic outlook brightens, for now, investors would be advised to sell.
Northern Foods
59¼p-1¼p
Questor says Hold
Who’d be a food manufacturer at the moment? On the one hand they have been dealing with dizzying rises in raw material prices. And on the other they are fending off demands for price reductions by their customers – the supermarkets.
In this light, the management of Northern Foods, which makes Goodfella’s pizzas and ready meals for M&S, has done a pretty good job of late. The company said yesterday that underlying revenues over the first half of its financial year rose by 3.9pc.
Northern Foods said that although sales grew in cash terms over the half, the amount of goods that it sold fell.
This is because the company managed to successfully pass on price increases to retailers. The average selling price of Northern’s products increased by 5.6pc, while sales volumes fell by 1.7pc.
However, analysts said that although the results are solid, the group will make most of its profit in the second half. Indeed, Panmure Gordon estimates that first-half profits, which will be unveiled on November 11, are likely to be “well down” on last year.
Things could become easier for Northern over the coming months. Supermarket bosses are telling us that food inflation has peaked. This should mean that food manufacturers’ prices should come down and – depending on what happens in the wider economy – volumes might tick up again. The company has a strong dividend yield and looks tasty.
But Questor would advise some caution and repeats the hold recommendation it gave readers in January. Wait until we have clarity on the second half.
Kewill
67½p-12¼p
Questor says Avoid
It was difficult to track which direction Kewill was headed yesterday after the software logistics group said it expects revenues for the first half to be “marginally ahead” of last year but full-year profits should be in line with expectations with lower revenues “than planned”.
The key message seems to be that the credit crisis is leading to customers conducting more due diligence and delaying their approvals.
The US and Asian markets are also tough, offsetting strong growth in Europe.
For now, analysts appear to be maintaining their estimates as Kewill promises to accelerate the integration of business units to extract more cost savings.
However, the sector is entering a difficult period and German software leader SAP warned on Monday that its sales had dropped off sharply as companies cut back their budgets.
With an unappetising yield of just over 1pc, Kewill is worth avoiding.