Michael Page gives little hope of improvement

Bunzl; Galliford Try
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The Independent Online

Michael Page International, the City recruitment group, managed to pull off a flotation just before its markets tanked. Given that the writing was already on the wall when the company listed in March last year, the IPO was an impressive achievement – for the company. Those who bought into the float, at 175p, are not impressed.

Within weeks the company had put out a profits warning, with at least one other later in the year. The Financial Services Authority even launched an inquiry over whether directors had kept the market properly informed about a deterioration in trading. They were eventually cleared.

Yesterday's full-year figures were always going to make for grim reading. Operating profits crashed from £82.5m in 2000 to £64.1m last year. Profits are forecast to almost halve this year to £36m. The reason for all the gloom is obvious, 64 per cent of revenues come from accounting and financial recruitment, with 21 per cent from marketing and sales. These markets are in deep recession.

Michael Page said that trading started to turn down last summer and things have been getting worse ever since. Recruitment companies have tried to claim that business holds up even in a downturn because their clients simply look for temporary instead of permanent workers. But that, as Michael Page's chief executive, Terry Benson, concedes, is errant nonsense.

Recruitment is a cyclical business. Michael Page was floated at the top of the cycle, or past the peak by some calculations. It has been downhill ever since and the company yesterday gave no indication that it had reached the bottom. Mr Benson said no green shoots were evident in any of its substantial businesses. He is assuming that the rest of 2002 will be tough, with no hint of a second-half bounce.

The shares, however, have recovered from a 96.5p low seen in October. Yesterday's figures came in slightly ahead of reduced expectations, leading to the stock closing up 6 per cent at 147p. That leaves the shares on a forward multiple of 23 times. With no economic turnaround in prospect, that is too expensive.


Bunzl is in the business of plastic bags, stick-on labels and clingfilm. It supplies supermarkets with all those things they need but don't actually sell. It also distributes packaging to caterers and wholesales cigarette filters and sticky tape. It is a notoriously boring company, among the 100 biggest in the UK yet scarcely followed by the City. Yesterday, it reported a 10th year of profit growth under its current management.

That's no mean feat amid the global economic slowdown and deflation of raw materials prices. Organic growth in the volume of products distributed by Bunzl was about 7 per cent, although measured in monetary terms there was a 4 per cent decline. Profits rose to £187.7m, over £173.4m for 2000.

Caterers increasingly outsource management of their suppliers, and in a fragmented market Bunzl's sheer size puts it in pole position to win the business. It is notably strong in North America. The group is also gaining because of supermarkets' need of microwavable packaging for their ever-broadening ranges of freshly prepared takeaway foods.

There are some stale bits of Bunzl group. Unsurprisingly, given the manufacturing recession, the plastics division profits fell 16 per cent, as did the paper distribution business, which has suffered from the advertising slump. The Filtronica business, though, which sells the cigarette filters, is still growing and throwing off enough cash to ensure Bunzl can continue to drive sales through bolt-on acquisitions. With shares, up 17.25p to 485.25p, on 16 times forecasts of this year's earnings, they are worth holding.

Galliford Try

The merger of Galliford and Try in 2000 created a construction group with interests spanning southern England housebuilding, private finance initiative school building and project management for utilities such as the water business of United Utilities.

Half-year results raised worries over margins in the construction business, although the company insists the start-up costs of big PFI contracts were the main culprit, and the profits will start rolling in soon. Meanwhile, the housebuilding side is as strong as the market.

The company has locked in low interest rates with a five-year fix for its main borrowing rate, but if it expects rates to rise, then investors should also expect a dampening of the housing market. Take profits.