Market values

12-Nov-2008

Billions have been wiped off the market value of the listed recruitment agencies, as shares tumble in the wake of negative news and poor market perception.

Even as some recruiters return positive results, market sentiment has led to a fall in market value with the 14 companies analysed between 30 November 2007 and 31 October 2008 (right) dropping by more than £2bn.

Albert Ellis, chief executive of IT, executive and financial recruiter Harvey Nash, told Recruiter part of the problem has been caused by troubled investors dumping stock.

“There have been some distressed sellers. These are generally small-to-medium sized hedge funds with redemptions or margin calls on their borrowing — they are just selling everything [when they have difficulties raising capital],” said Ellis. “We had one last Monday and our share price dropped 20-30%. You have no support for the share price because there are no buyers, so the price can go anywhere.”

Harvey Nash’s share price has dropped by 60.5% over the past year, from 55.75p to 22p, even as its interim results released in September saw a 25% rise in pre-tax profit to £3.9m.

The traditional view that recruitment agencies are cyclical businesses and that profits will follow the market has led to a negative perception from investors.

Gerry Mason, chief executive of technical recruiter Morson, told Recruiter he thought recruitment companies have been continually undervalued. “The sentiment of the market is that staffing business have to go in cycles. However, companies like Morson have a different model; because of the long-term frame work agreements we have in place in engineering contracts in the UK’s nuclear power stations, rail and infrastructure projects, the business is more resilient.”

The only recruitment company in the list to increase its share price during the financial crisis is Healthcare Locums. The company saw its share price increase by 14% over the last year, from 89.5p to 102p.

Stuart Hands, partner of financial advisors Fusion Corporate Finance, told Recruiter the improvement in price was due to the company’s position in the healthcare sector, which is largely recession resilient.

“The healthcare industry is largely driven by government legislation. The government is going to struggle to spend as much money as they have done in the past on the NHS and healthcare, and GP surgeries will have to cut back on recruitment and permanent staff — those holes can be filled by locums.”

Finance, HR and IT recruiter Hydrogen experienced the biggest percentage drop in share price over the year of the companies analysed, falling 84.2% from 260p to 41p. The company has been damaged by its exposure to the financial services sector.

In June it issued a profit warning, which caused its profits to tumble by more than a quarter.

At the time, Ian Temple, Hydrogen’s executive chairman, said: “The business has performed well in most areas, but the slowdown in the investment banking market has frustrated our ability to achieve our expectations this year.”

At the moment the share prices of listed recruiters reflect the slew of bad news about the economy. However, once market indicators change, staffing companies who have weathered the storm may be in a strong position to rally prices. Ellis predicted that for recruitment agency share prices to rally, there would need to be signs of GDP growth or bottoming out, increased corporate earnings or a stabilising of joblessness figures.

“The doom and gloom factor has already been discounted into the prices, so if people realise it’s not as bad as they think, there will be an uplift,” he said. “We have been having profit increases and price falls; I think that will turn.”

christopher.goodfellow@centaur.co.uk