US Edition Michael Page
227.75p
Questor says AVOID
It doesn't take a detective to figure out that times are particularly challenging for Michael Page International.
This week's first-quarter figures, revealing that gross profits had slumped by a third to £95m, further highlighted how the recruitment market is stalling.
The recruitment consultancy said the slowdown was being felt across all its key markets and every sector.
Its key region – Europe, Middle East and Africa – makes up half of the group's gross profits, and it experienced a 26.8pc drop in profits to £47.7m.
The UK – Michael Page's next biggest area, representing just under a third of profits – recorded a 38.7pc drop in profits to £28.9m.
Michael Page has weathered a number of recessions and has been cutting back on its own wage bill to cope with the challenges ahead.
Headcount over the last quarter fell by 809 people – 16pc – but there have only been about 100 redundancies. Staff have been leaving on their own accord as bonuses dry up.
Steve Ingham, chief executive, has expressed confidence that Michael Page is well placed to survive this economic downturn. He is also optimistic that in these torrid times people looking for new jobs and those few companies seeking to expand will increasingly turn to a well known and established recruitment business.
However, he has no idea when the market will turn, and Michael Page has warned that with Easter falling in April this year (compared to March last year), its second-quarter profits will be hit.
However, it does not look like the jobs market is going to improve any time soon. Unemployment in the UK will reach 3.2m by 2010 as the recession deepens, the British Chambers of Commerce (BCC) warned last week.
The unemployment forecast from the BCC follows a number of warnings from economists that the total could surge above 3m – a level not seen since the
early-1980s – as the economic downturn causes businesses to axe staff.
Last October, Questor felt that the outlook for the job market was uncertain and advised investors to sell Michael Page's shares when they were trading at 218¼p.
The shares have fallen to as low as 180p since then, and have done well to recover in recent weeks. When the market picks up, the stock should push ahead rapidly.
However, the world economy is still on a knife-edge.
The job market is likely to get worse before it gets better and, with Michael Page trading on a staggering 38 times forecast earnings in the current year, Questor believes there will be better opportunities to pick up the shares. Of course, staffing companies tend to be leading indicators of any economic recovery, but for now the stance is avoid.
Hilton Food Group
160p
Questor says BUY
Meat-packing group Hilton Foods posted a solid set of annual results last week – and the shares look good value at this level.
The company manufactures steaks, lamb and beef roasting joints and value ranges such as steak mince meat. The company posted a reassuring set of full-year figures and, although the market is definitely challenging, Questor feels that the shares are undervalued at current levels.
The company supplies some of Europe's premier supermarket chains, including Tesco in the UK, as well as Ahold and Albert Heijn in the Netherlands.
The company operates from state-of-the-art facilities located in the UK, Ireland, Holland, Sweden and Poland.
Hilton sources meat locally and then processes and packs it in large-scale, modern, central meat-packing plants for onward distribution by third-party hauliers.
These plants operate at high volumes and the company has made significant investment in its packing capacity over the last few years.
Rapid growth has been achieved by geographical expansion, product range extensions and the underlying growth in the market achieved by Hilton's retail customers. Hilton is now the largest dedicated packer of red meat in Europe, based on revenue.
In the 12-month period to December 31, turnover rose 26.3pc to £729.5m, which boosted pre-tax profits by 11.6pc to £17.3m. In a confident move, the company upped its full-year dividend by 10pc to 8.14p. The final payout of 5.74p is still available to new buyers of the shares, as they do not go ex-dividend until June 3.
The company is cash generative, as evidenced by its reduction in net debt in the period, which fell to £28.6m from £36.2m.
The company also has no re-financing requirement until 2013.
The shares are trading on a December 2009 earnings multiple of 8.7 times and yielding 5.7pc. The dividend looks secure because of the company's cash generation and the fact it is two times covered by earnings. Buy.
YouGov
38.25p
Questor says HOLD
After polling group YouGov issued its last profit warnings, Questor advised investors to continue to hold the shares. The shares are at the same level now after moving sideways for the past few months.
Market research is generally thought to be resilient in a downturn, with companies seeking the most cost-efficient means of finding out about their consumers. However, it is clear that this company is far from immune to the recession. In particular, YouGov is thought to have been hit particularly hard by the problems engulfing the financial services sector.
The company's interim results were just as bad as expected, with adjusted pre-tax profits falling by more than half.
On the positive front, net cash increased to £13.7m as of January 31, from £12.3m at July 31 last year. This balance sheet strength is the major positive for the company.
The group also said that it expected to meet current full-year consensus expectations and the company is cutting costs. The market research industry will also recover strongly when the so-called "green shoots" have started to put down solid roots. There is also the possibility a number of lowly-rated companies may be taken private by management at some point over the next year – and arguably YouGov could be one of these.
The shares are trading on a July 2009 multiple of 12.2 times and, despite the lack of a dividend, Questor says hold.