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Recruiters lack jobs for the City boys

Created:
2 April 2008
Written by:
Algy Hall

Since the credit market turmoil began last summer, financial services firms have doggedly hung onto their staff for fear of being left short of skills when business picks up. But business now looks unlikely to pick up for quite some time. According to the latest CBI/PricewaterhouseCoopers survey of the industry, “almost all respondents now doubt whether normal conditions will be resumed before the end of the year.” As a result up to 11,000 financial services jobs are expected to go, and that could be just the beginning.

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So the recruitment sector, which has continued to report record profits since the credit turmoil began, could finally experience tougher trading. But the downturn in the financial services job market does not, in itself, spell disaster. “The exposure of the UK staffing sector [to financial services] is less than 10 per cent,” says Seymour Pierce analyst Kevin Lapwood, “The question is will it extend to other sectors of the economy?”

Unfortunately, financial-services job losses are symptomatic of the enduring nature of the credit crunch. “Most directly and immediately the employment impact [of the credit crunch] will be on the financial sector.” says Vicky Redwood of Capital Economics, “but as it goes on, it will be felt more widely… We think this downturn will pick up steam.” In fact, Capital Economics believes unemployment could reach a ten-year high of 7.5 per cent by the end of next year.

This gloomy scenario would inevitably be painful for recruiters, but how much should shareholders worry? Last year’s hefty share price falls have priced in a lot of bad news, which means the market may be able to take further disappointments in its stride. Indeed, the four biggest recruitment stocks rose 4.5 per cent last month despite the Recruitment and Employment Confederation’s Report on Jobs noting the first drop in permanent placements for almost five years.

Moreover, skill shortages in the UK labour market and increased international diversification could help shore up the industry in a downturn. “What the market is basing [valuations] on is the structure of other cycles,” says Mr Lapwood, “but the UK staffing companies are very different now.”

TIP UPDATE:

Buy

Despite the gloomy outlook, we maintain our buy advice on Hays at 120p (Buy, 111p, 27 Feb 2008) and Robert Walters at 178p (Buy, 149p, 25 Feb 2008) due to their low valuations, and extensive and growing overseas operations.

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