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Recruitment bid hopes rise

Created:
7 January 2008
Written by:
Algy Hall

A ray of light has shone through the dark clouds enveloping the recruitment sector. Share prices enjoyed a brief fillip on news that Randstad and Vedior of the Netherlands have agreed a merger that could create the world’s second largest recruitment company, sparking hopes some of the UK’s big players may become bid targets.

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The potential targets in the sector are top-quality players, such as Michael Page and Hays, with recruitment giants Adecco and Manpower regularly billed as potential bidders. According to Seymour Pierce, the Randstad/Vedior deal implies 40 per cent upside to the battered share prices of UK recruiters if a similar take out multiple were applied. But, in the wake of the credit crunch, the market is behaving as if the peak of the recruitment cycle has already been and gone. And, if this gloomy prognosis is right, it seriously reduces the chances of inflated bids.

Industry data for November, which built on weak October indicators, has given some credence to such concerns. KPMG and the Recruitment and Employment Confederation’s monthly survey of 400 leading UK recruiters, reported the weakest rise in permanent placements in 21 months and permanent salary inflation at a 16-month low. Adding to the evidence that employers are preparing for a slowdown was news that demand for temporary staff – workers that can easily be given the boot – hit a four month high.

The trend may look worrying but some comfort can be taken from the chronic skills shortages that have characterised the job markets for some years – the challenge recruiters have faced has been finding candidates rather than positions to fill.

Tip Update

GoodValue

We’ve recommended buying both Hays (162p, 17 Aug) and Michael Page (443p, 26 Oct) this year, and if the job market remains robust in the face of the credit crunch the shares appear incredibly cheap and could prove a bargain for any bidder. But, with the outlook for next year deteriorating, the recruitment market looks like it could well falter. So while Hays and Page remain good value at 115p and 299p respectively, the shares are only for risk takers who can stomach the risk of a nasty turn of events.

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