Just the Job
Shares in recruitment companies Michael Page (MPI), Robert Walters (RWA) and Hays (HAS) took a sharp dip midweek after the latest employment figures. That reaction was overdone and it didn’t take Page long to drive the message home.
Statistics can be tricky things and it is very easy to distort the picture. Hence the general view that you should not take too much notice of one month’s figures because any aberration may be just a blip. However, news that unemployment had risen for a second consecutive month in June brought an attack of nerves. Could the UK economic recovery be hitting the buffers?
A closer look at the figures suggests no. These are quarterly rolling figures, a method of calculation that brings its own distortion. It looks as if the jobless rise came in April and May and that unemployment actually fell in June, so it is likely that there was a lull in recruitment ahead of the election and a picking up of the slack since.
Furthermore, the numbers in full-time employment rose in the second quarter and the drop came entirely among self-employed. The move into more stable, permanent jobs continues.
Much was also made in the press about a moderating of wage growth. This again is no bad thing. The surge in pay earlier this year was starting to reach worrying levels since there was no matching improvement in productivity. Wages were still up 2.4% in the three months to June. With inflation bumping around zero, the strengthening in household incomes continues without being an inflationary threat.
Just one day later Michael Page bounced back with an increase in the interim dividend plus a bumper special dividend. Gross profit, the best measure of progress for recruitment agencies, increased 6.5% and would have topped 10% for a fourth successive quarter but for adverse currency movements. The best performing region was the UK, where gross profits rose 12%, but even in the Asia Pacific region, where there is considerable concern over a slowdown in China, profits grew 9%.
Page shares promptly regained most of the previous day’s loss but they don’t look too expensive to me. I am retaining my holding in Hays without any qualms.
Balfour upBeatty
A great weight of hope (including my own) rests firmly on the shoulders of Leo Quinn, the newish chief executive of Balfour Beatty (BBY). We can’t blame him for the disastrous series of underpriced and mismanaged contracts that have brought seven—I think it’s seven, I’ve lost count—profit warnings in the past two years but he is on a hiding to nothing as he sorts out the mess.
Balfour shares actually rose 10p on the day he scrapped the interim dividend. They stood at their highest level for 15 months this week, 260p, having amazingly gained more than £1 since the nadir last October. Unlike the market in general, they stand higher than they did in April.
Quinn is confident that “the worst of the storm has passed”. However, he admits that it will take until the end of next year for all the problem contracts to work their way out of the system. That probably means two years with no dividend.
I bought Balfour shares before the storm broke and I topped up at a significantly lower price when I thought, erroneously, that the worst was over. For once I benefited from indolence and indecision as the shares collapsed further and I nearly sold out at the bottom. I am now, overall, showing a profit again and I have pocketed some dividends in the meantime.
I think Balfour has a great future but these shares are only for the patient. I wouldn’t chase them any higher at the moment.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice. His views are not necessarily the views of Morningstar UK.
