The support services sector is known for the cyclicality of some of its constituents, and over the last week two of the sector’s most cyclical companies have caused the market to pause for thought about the veracity of recovery hopes.
Both tool-hire firm Speedy Hire and recruitment company Robert Walters are notable for their very short order books, high operational gearing and the sensitivity economic activity has on demand for their services. In other words, they are arch-cyclicals and as such act as something of a barometer for the market’s recovery hopes.
So it's worth noting that Walters’ shares failed to get a boost from its relatively benign update and Speedy Hire, which is considered a late-cycle play, dropped more than 10 per cent on its more-downbeat news. While management of both companies did speak of increased stability in their end markets, they also highlighted ongoing uncertainty and tough conditions. Analysts think Speedy Hire, which is rated on 49 times earnings estimates for the year to March 2010, is unlikely to meet previous full-year expectations. Walters remains loss-making and at best is forecast to turn in a small profit in 2010.
The wobbles come after huge rebounds in both companies’ share prices as investors priced in a strong trading recovery. However, the reactions to the statements suggest that the market is becoming increasingly nervous that a much-hoped-for 'V-shaped' recovery won’t transpire.
