Investment Column: The wrong time to punt on Michael Page

Big Yellow Group; Cape
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The Independent Online

Our view: Avoid

Share price: 234.75p (+9.25p)

Not until Michael Page International's share price reaches the 400p mark should investors really be content.

That was the price that the Swiss group Adecco indicated it was prepared to pay for the recruitment company 18 months ago. Michael Page's management team rejected the approach, saying they could better create value for shareholders.

The group specialises in permanently placing "critical" workers, and while nobody at Michael Page can be blamed for the meltdown in the jobs market following the banking crisis last year, the fact remains that the stock has been nowhere near 400p since, and shareholders have lost out.

The group issued its first-half trading update yesterday, saying that second-quarter profit fell by 45 per cent to £83.8m. Perhaps more worryingly for investors is that it does not see things improving before the start of next year. The chief executive, Steve Ingham, is bullish, and says he still would not accept another bid of 400p from Adecco, believing that when the nuclear winter passes, the group will be in much better shape, the share price will be up and market share will be gained after weaker rivals go to the wall.

We would not demur, but would be happier buying stocks that are better coping with the recession, and feel that there could be more to pain to come for a stock that Mr Ingham concedes follows the economic cycle.

He points to the steadying of the group's UK performance as evidence that trading may be stabilising, and indeed that may account for the 5per cent increase in the share price since the start of the year. The analysts at Astaire think that the hike is due to a belief that Adecco may return with a bid, which Mr Ingham rules out. The watchers say they prefer rival Hays, which "offers more defensive qualities and a yield of 7 per cent, compared to 3.5 per cent for Michael Page." We dislike the whole sector and believe the rising unemployment rate counts against it. Avoid.

Big Yellow Group

Our view: Cautious hold

Share price: 337p (-1.75p)

You cannot miss Big Yellow's storage sites, which are mostly located in London and the South-east.

Investors have not wanted to miss the shares in recent months either, as the group's stock has gradually emerged from the hammering it took towards the end of last year. The chief executive, James Gibson, says that the market appears to be differentiating between the different types of property groups and that Big Yellow is being rightly seen as cyclical stock that will get a boost as the market swings into a recovery. The problem with that theory, of course, assumes that any recovery is imminent.

The shares are up by 44 per cent in the last quarter, and Mr Gibson reported as part of yesterday's trading update that occupancy rates were up and trading was improving. He is cautiously optimistic about the future, and with any concerns about the group's balance sheet scotched by various acts of balance sheet repair, Big Yellow is in good shape, so goes the argument.

Mr Gibson concedes that a genuine recovery depends on the housing market improving, and with only four to six weeks visibility, and with the stock trading at the upper end of the peer group range, we would be inclined to wait until there were more solid signs of improvement.

Big Yellow would be our pick in the sector, but we agree with Mr Gibson that the stock is cyclical. With plenty of commentators now predicting a double-dip recession, we would be inclined to wait for a little while before buying Big Yellow. Buyers today could yet get caught out badly. Cautious hold.


Our view: Buy

Share price: 189.25p (+1.25p)

The good news for investors in the energy services group Cape is that yesterday's trading update revealed no surprises and as such, they will be hoping that the remarkable 206 per cent surge in the share price over the last six months continues unabated.

Potential investors will of course be ruing their decision not to buy earlier, but can take heart from Cape's undemanding valuation. Despite the recent share price spike, the group's shares are still pretty cheap, trading on a price earnings ratio of seven times, a discount to the rest of the sector.

There was some disappointing news yesterday (there is no such thing as a completely clean bill of health), particularly with some work in Australia being delayed. We would also argue that now is not the best time to buy Cape – that was back in November when the stock traded on a PE of less than one – but we do think that on the back of continually strengthening energy markets, Cape will not let investors down. Buy.