The City had turned chilly for recruiters, so they've been busily investing in expanding beyond the confines of the Square Mile and beyond Europe with its stifling debt crisis and sluggish economy.
The recent results from the likes of Michael Page and Hays didn't look all that pretty, but the market senses a turn in their fortunes and the sector has been chased up in the past few months. I'd suggest that there is still time to board this train, however. It's not at the end of the line yet.
When I last looked at Michael Page on 24 February last year, its shares were around the same level as they are at today, although they fell immediately after I suggested they were best avoided, so I'm happy with my call.
The company hates being referred to as a "City headhunter" and you can understand why. Its energetic chief executive, Steven Ingham, has worked assiduously to diversify the business away from banking and the Square Mile, with some success.
The City has, it's true, acted as a drag on the results. But it wasn't just the City this time around. There were negatives in lots of columns and of the headline numbers, only the dividend was maintained. Turnover fell by 3 per cent, pre-tax profit by nearly 25 per cent, operating profit (before one-off gains) by nearly a third. And things deteriorated again in the second half.
However, while Page warns that this year will be challenging, there are some good reasons for looking ahead to a brighter outlook, not least because when the economic and recruitment cycles turn (and the latter lags the former), Merrill Lynch reckons the company will have scope to double in size.
It is also worth noting that 77 per cent of profits now come from outside the UK against 61 per cent a year ago. The company has opened offices in Cape Town and Rio de Janeiro to complement previous openings in Taipei, Suzhou, Bogota and Casablanca. In total it now has 16 offices in Asia and 20 in Latin America, producing just over a 50 per cent of its earnings.
That should actually set the business up rather well. The way headhunters have taken control of recruitment in the UK is not always something to be welcomed – is it really healthy to give external agencies so much power over who you hire for your business?
However, it's good news for the investment case. What is particularly compelling about that is how little market penetration recruiters have in fast growing "tiger" or Bric economies. There is a lot of growth to shoot for, if they can get it right.
Page now trades on 29 times this year's forecast earnings, while offering a prospective yield of 2.4 per cent, however, that multiple falls sharply in the years ahead and it isn't much above the historic average.
I'm inclined now to place a bet on Michael Page bouncing back. It has been investing heavily and that should eventually pay off, perhaps quite handsomely.
If there is a red flag it is that these businesses have very little visibility and are sensitive to the global economy. This is a company that could dazzle us all with its next results – but it could just as easily put in another profit warning. All the same, I'd still be inclined to take a gamble. So I make it a buy.
Hays has been a steadier bet. It concentrates more on the "mass" market than Michael Page and to my mind is a less dynamic business. But its shares – just above 87p when I last looked – have started to gain some momentum.
Again there was not a lot to love about its recent half-year results, with minus signs littering the statement, and that includes Asia. Hays' financial year runs to the end of June and the interims showed a 4 per cent fall in fees and operating profits but a near 20 per cent drop in pre-tax profits.
That said, Hays is a big business with scale and scope for growth, and has reported encouraging signs. I'd be minded to tuck some of the shares away. At about 21 times earnings for the year to 30 June, that falls to 19 times for 2012-13 and then 16 times.
SThree might have a silly name, but its full-year numbers at the beginning of the year showed plenty of plus signs, a rarity for the sector. Niche can pay off nicely, if you happen to be in the right niches, and apart from banking, perhaps, SThree has some good ones (IT and pharmaceuticals are examples). It has offices in the Brics and the Gulf, and would appear to be set fair.
The stock is not all that cheap at 24 times earnings for the year to the end of November, but that falls to 19 times next year, and the forecast yield of more than 4 per cent is worth having. It was trading below 300p when I said hold on 24 February. The shares are looking toppy right now, but keep holding.
Robert Walters trades on a similar multiple to Michael Page and has also been making efforts to diversify. However, for the moment, its shares would appear to be up with events, and there are more attractive opportunities in the sector. Hold for now.
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