Investment Column: Michael Page is not one to let go just yet


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Michael Page

Our view: hold

Share price: 368p (-32p)

Given the current financial turmoil it's probably no surprise that shares in Michael Page International, the recruitment consultant, have fallen off a cliff. The economic outlook has taken a sharp turn for the worse and, thanks to the sovereign debt crisis that is shaking much of the Western world, there are fears that a sluggish recovery could seize up. That does not bode well for the jobs market.

Michael Page said yesterday that first half pre-tax profits (before exceptionals) came in at £45.5m against £33m last time. Analysts had expected a higher number, although the company said investment in terms of head count was skewed towards the first half (so the second half should look better).

Investors also took fright at a marked slowdown in banking recruitment in recent weeks, together with an admission by Michael Page that the UK market – still a big part of the business – would be "challenging".

On the plus side, look at the international part of Michael Page. The company has been pushing hard into the Latin American and Asian markets which remain rather greenfield sites for recruitment consultants and where it is already a market leader.

And banking accounts for only about 10 per cent of the business.

Yesterday's share price fall looks like an over-reaction, and we think the stock should find a floor soon. With cash on the balance sheet, it is in good shape, with a strong management team.

We were originally buyers at 423p in May 2010, and said hold at 463.4p the following October. It is only very recently this advice could be called questionable. The stock sits on 18 times forecast full-year earnings, falling to 14 times 2012 (with a prospective yield of 2 per cent). With the outlook worrying we wouldn't be buying right now. But Page is the pick of its sector and we'd stick with it. Hold.

RSA Insurance

Our view: buy

Share price: 117.6 (-0.4p)

Any time you get an event like the violence that spread like a virus around the cities of England, people start totting up the insurance cost. That won't be cheap, however much the Government chips in. Still, of more long-term significance to RSA is the departure of Andy Haste, who as chief executive turned a dog of a business into a tiger.

It's easy enough to read the back story. Last year he saw a merger with Aviva's general insurance business as a potentially transformative deal. That wasn't to be because Aviva wouldn't play ball, so he probably felt his work was done. What should be noted is that one of Haste's many talents has been to surround himself with good people. So investors shouldn't worry about his successor, Simon Lee.

Moreover, the last results were balmy – operating profit up 22 per cent at £467m, well ahead of analysts' predictions, with £4.2bn of premiums written, up 10 per cent. Now the deal is out of the way, our caution about the shares – prompted by a concern that RSA might over-pay too – has gone.

The shares currently trade at a slight premium to the forecast value of RSA's in-force business, but given its recent record this is deserved. And the forecast yield – approaching 8 per cent – is smashing. We're buyers.


Our view: buy

Share price: 330.6p (+1.1p)

For many in the market, any gains carefully built over the course of the year have been wiped away by the recent sell-off – for RPC the falls have merely caused a dent.

The plastic packaging supplier may have lost more than 16 per cent of its share price in just five sessions, but after a partial rally it still remains nearly a third higher than where it started the year, while it has more than quadrupled since 2008.

The company last updated the market at the end of July, saying that, despite difficult market conditions, it was on track to meet expectations. There is a lot of positivity around the potential for the world of plastic packaging, and earlier in the year RPC completed a round of cost-saving measures which should leave it well-placed if conditions worsen.

The recent slide does seem to have provided an attractive entry point, with Altium calculating that, on a forward price-to-earnings basis, the stock is at its cheapest for more than two years. Although the current uncertainty around the market means investors need to be careful, now seems to be a good opportunity to get involved in a company that appears set for further gains.