Investment Column: Michael Page story takes a turn for the worse

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The Independent Online

Our view: Sell

Share price: 182p (-11p)

Michael Page International, the recruitment group, brought forward its January trading update yesterday to warn the market that its profits would come in at the lower end of forecasts, at around £136m.

The market reacted predictably enough and the shares sank 5.7 per cent, which cannot have impressed investors who must now be further disgruntled that the group rejected an indicative 400p-a-share approach from the Swiss recruitment group Adecco in August.

A spokesman for the company said that yesterday's announcement was a further example of how open and up-front Michael Page is with the market, citing examples of when it has told everyone of "softening" markets. The fact that Michael Page battened down the hatches and would not be interviewed about the statement yesterday suggests that the management is not as open as it likes to suggest.

Nonetheless, the fall in the share price could encourage some to jump aboard. UBS would caution against it, saying: "Our price target [of 180p] is unchanged and is based on circa eight times 2009 earnings per share." There are those who do back the group: Citigroup says the stock will rise to 220p, citing the group's relative outperformance against the peer group this year, but concedes that most of the gains are down to the Adecco approach.

Given that the job market is likely to become swamped in the coming months, it is difficult to identify a stimulus to get the stock moving. A further approach from Adecco would help, but the watchers at UBS believe this is unlikely.

The group said yesterday that it is cutting staff levels to 5,100 to help to mitigate "significantly reducing activity levels and [a] shortening [of] the group's earnings visibility," but would not be asked what else it is doing to mitigate this dreadful market. Sell.


Our view: Cautious hold

Share price: 526p (+27.5p)

With Bellway, the housebuilder, investors are caught between the devil and the deep blue sea.

On the face of things, buyers should not touch the group with a very long bargepole, afflicted as it is by being a central member of the toxic housebuilding fraternity. Indeed, the group yesterday warned that it is possible that it will face future writedowns and that its house sales are down to between 50 and 60 a week, which is a pretty miserable number against past performance.

The trading statement continued: "The trading environment has continued to be extremely testing as the market suffers from negative consumer confidence and restricted mortgage finance."

Furthermore, the group says the next 12 months will be tough, having already lost nearly half its value in the last year.

In normal circumstances, the last investor standing would be asked to turn the lights out as they left. But it really is not all that bad. Bellway is now the biggest UK housebuilder by market capitalisation, and the market reacted positively to yesterday's statement, with the shares closing up 5.5 per cent. Moreover, the group's loss of value looks creditable against its competitors: Persimmon is down 76.7 per cent, Barratt Development has lost 88.6 per cent.

It is not that investors should be buying Bellway, but those who have undoubtedly endured a bit of pain holding Bellway should not necessarily rush to sell either.

The group is increasing its exposure to the public sector housing market and has cut costs in other areas. Analysts at Panmure Gordon say that the share price will remain steady, and reckon that because of the group's low gearing versus its peers, "it will exit this downturn in good shape."

We think that housebuilding will remain tough next year, especially as more people start to lose their jobs, but Bellway is the best of a bad lot, and should give holders a boost when we eventually turn the corner. Cautious hold.

Western & Oriental

Our view: Hold

Share price: 3.625p (unchanged)

The posh holiday package provider Western & Oriental is an intriguing option for investors. In valuation terms, the shares, having lost two-thirds of their value in the last year and trading at 3.8 times enterprise value to Ebitda, are appealing. The fact that the market capitalisation has fallen to £8.3m and similarly sized peers have been snapped up by bigger groups in recent months for more than £20m suggests that there is the potential for investors to make a killing. The chairman, David Howell, suggests he would not be adverse to selling the group, encouraging the idea that "the shares are bloody cheap".

That is the bull case. On the other hand, the company issued its full-year results yesterday showing that full-year losses had all but doubled to £4.1m. Mr Howell says that the group has already restructured and has taken £1.7m of costs out of the business. The order book is going great guns, he added.

Holiday companies are continuing to do well, despite the recession, but it is counter-intuitive to expect this to continue. The company has been busy making itself as resilient as possible, but nervous investors have hitherto not bought the turnaround message.

A punt on Western & Oriental is high risk, but the hope of a buyout should encourage the brave. Hold.