These track the market performance of the bunch of recruitment companies. Since March, the main index has been creeping up, and since the beginning of April it has outperformed the FTSE All-Share by 30 per cent That sounds a lot, but this sector is highly cyclical. Looking back from June over the period since its peak in 1998, shows it has underperformed by 80 per cent. The key to making stock picks in the sector is the amount of net revenue from permanent staff.
Here, the conversion rate into gross profits is much higher and the operational gearing on fee income is huge.Take the main "buy" in the sector, Michael Page, for example. It supplies accounting, marketing and sales staff internationally and is a brand leader and the largest and most liquid stock in the sector The UK provides more than half its sales. Figures this month showed a better than expected interim pre-tax profit of £11m, leading to an upgrade in forecasts to £21m pre-tax for 2003 with EPS of 3.5p, followed in 2004 by £25.5m with EPS of 5.4p.To illustrate the operational gearing effect, this forecast is on a quarter by quarter increase in fee income of 5 per cent. Push that to 8 per cent and the pre-tax figure for 2004 rises to £28.8m, and with a 10 per cent rise it goes to £31.5m.Other picks are Robert Walters, PSD and Spring. Robert Walters gets three-quarters of its business from the UK.
It is forecast to make £1m in pre-tax profits this year, with 0.6p of earnings It is then expected to improve to £1.7m with 1.1p. PSD, with 90 per cent of its business in the UK and permanent staff account for far more than half of its turnover, is expected to make £1.1m pre-tax, with 3p of earnings followed £1.8m with 5p. Spring swings from EPS of 0.4p to 4.5p over the next two years.City-based Imprint Search is a minnow, but nicely geared in to multinational business. It launched in 2001 but it kept its float promises and announced a profit this week, four trading periods on. It has a rewarding business model and a 35 per cent stake in the company is available as a performance-related reward for staff.
It should make £0.35m this year, and is expected to double that next year, with EPS of 2p and 3.8p >. Although others have commented on this elsewhere, I cannot resist a few observations about the latest bout of headlines to cast scorn on the concept of the with-profits business. These were prompted by an article in the specialist magazine Money Management by John Chapman, the former Office of Fair Trading official. He has made a name for himself by his relentless and praiseworthy attempts to cast light into the murky darkness that is the innermost workings of the life industry and its product range. There have been several notable fund closures, including Equitable Life, of course, but also involving such household names as Royal & Sun Alliance, Britannic Assurance, Pearl Assurance and Scottish Mutual. As Equitable policyholders have learnt to their cost, there are genuine and formidable management problems to be faced in managing a fund that has been closed to new money and is moving into what the industry calls "run-off".What captured the headlines in this case was the extravagant language Mr Chapman used to conclude his otherwise sensible and worthwhile piece. "The majority of householders will be affected by the upheavals in with-profits, a national nightmare," he wrote.He added that given the "bizarre" features of traditional with-profits policies, especially the secrecy surrounding how their values are calculated, achieving an orderly rundown of with-profits operations would be a huge task in which savers ran the risk of having their maturity payouts "manipulated" by their insurance companies.This is strong language, but undoubtedly reflects a growing sense of paranoia about with-profits that has begun to infect many normally sensible advisers and commentators.
