One of the conundrums of the financial crisis and subsequent recession has been the relative low level of unemployment, with job losses far less than in previous downturns. UK unemployment has only risen from about 6 to 8 per cent at its peak; it doubled during Margaret Thatcher's first term in office.
Many analysts put this resilience down to the quick-thinking and flexibility of businesses, with employees working less hours or taking sabbaticals to keep their jobs in the long-term. Even during the recovery, businesses have looked to hire part-time staff first before taking on new workers. Office for National Statistics (ONS) figures suggest 320,000 new roles have been created since the spring, predominantly part-time. This has been positive for those smaller recruiters that manage contractors. Blue collar supplier, Staffline was in somewhat of a sweet spot last year, where clients were optimistic enough to increase staff to meet demand, but cautious enough to not hire permanents.
Unusually for a recovery, the larger FTSE 350 white-collar players did begin to see permanent placements pick up more quickly though, despite the unemployment rate languishing at around 8 per cent. The rise was mainly on the back of churn in the market – where new roles aren’t created, but people move creating vacancies. This improved as businesses, particularly financial services, became more confident about global prospects. Year on year increases in permanent placements at the autumn quarterly figures were impressive for both Michael Page and SThree. Meanwhile, even Hays, with its large public sector exposure, posted double digit growth.
The imminent public spending crunch is expected to hurt sentiment though, which in turn will affect churn. In the three months to October, unemployment in the UK rose by 35,000 to 2.5m, taking the jobless rate to 7.9 per cent, up from 7.7 per cent in the previous quarter, with the 33,000 fall in public sector jobs not offset by private sector creation, as many has hoped. Paradoxically, sentiment among recruiters actually improved at the end of 2010 though, with the jobs market growing at the fastest rate for three months in November, according to the survey from the Recruitment and Employment Confederation and KPMG.
The UK aside, more important for recruiters in 2011 will be international exposure and how they manage this expansion. Michael Page witnessed a 88 per cent increase in net fee income (NFI) in the Asia Pacific region and 74 per cent in the Americas at its third quarter trading update, while Hays saw its Asian operations increase NFI by 59 per cent. Manpower's most recent employment survey said that Chinese and Indian employers reported the most optimistic hiring plans globally. Exposure to these regions will be crucial to recruiters’ fortunes, particularly as Page, Hays and SThree trade on forward earnings multiples in the low twenties.
| NAME | PRICE (p) | MARKET CAP (£m) | PE RATIO | YIELD (%) | 1 YEAR PRICE CHANGE (%) | LAST IC VIEW |
|---|---|---|---|---|---|---|
| HAYS | 127 | 1754 | 32.1 | 4.6 | 15.7 | |
| MICHAEL PAGE INTL. | 543 | 1745 | 66.2 | 1.5 | 32.2 | |
| STHREE | 371 | 452 | 51.6 | 3.2 | 22.9 |
