The first half of 2019 has been, largely, a buoyant one for investors in the larger listed UK recruitment businesses; most have outperformed the market, which itself has thrived. There are, however, growing concerns, based on recent economic data, that the UK and indeed global economy could be entering a period of trade tension driven turbulence.
The FTSE 100 whilst only a paltry 0.24 per cent up on a year ago has actually delivered growth of 10.35 per cent for the first half of this year; opening on 2nd January at 6728, it has soared to 7425 as at the close of markets on 28th June.
Virtually all of the largest listed recruitment businesses (with the exception of SThree and Impellam) have handsomely outperformed even the impressive 10.35 per cent recorded for the FTSE. Hays, with a market cap of £2.31 billion, has climbed almost 12 per cent during the first half of this year from 140.3p to 157p, although it is down over nine per cent over the course of the last 12 months. Peer, PageGroup, has performed even better, recording a 13.5 per cent price rise for investors this year and moving from 451.8p to 513p; it has a market capitalisation of £1.72 billion as at 28th June.
Elsewhere Robert Walters (market cap of £493 million) has recorded a handsome 15.3 per cent rise, moving from 562p to 648p this year. All these rises pails in significance compared to Gattaca (market cap of £44.5million), which has hiked over 31 per cent since January when it opened at 105p to 28th June when it closed at 137.75p.
Empresaria, meanwhile, has de facto trodden water during the first half of the year ticking down from 74p to 73.5p; it had a market cap of £34 million as at 28th June.
Shareholders at both Impellam and especially at Staffline, however, have had to endure a very challenging first half of the year. Impellam, with a market cap of £222 million, has dwindled by over 20 per cent with its share price dropping from 577p to 458p. Staffline, which issued a profits warning in May indicating that its expected EBITDA would fall well below analysts’ expectations, meanwhile, has plummeted by 89 per cent! Its share price crashed by over 60 per cent immediately following the profit warning in May and for this year it has fallen from 1129p to 118.8p.
It is perhaps noteworthy that Staffline (which also faced allegations earlier this year that it may have failed to pay national minimum wage to some of its workers) mentioned Brexit as a possible cause for its poor fortunes. And Brexit continues to play a powerful role in economic (and political of course) prognostications. Moody’s, the Ratings agency, on 2nd July warned that a no-deal Brexit would mean that the UK economy “would likely enter a recession”.
Harder economic indicators are also worrying investors. The HIS Markit Purchasers Managers index revealed that the UK services sector nearly stagnated in June and has fuelled fears of a UK economic contraction. Indeed Chris Williamson, chief business economist at HIS Markit, warned, “The near stagnation of the services sector in June is one of the worst performances seen over the past decade and comes on the back of steep declines in both manufacturing and construction.”
These portents of a possible pause (if not worse) in economic growth has led to growing investor expectation of a cut by the Bank of England of interest rates (currently at 0.75 per cent) this year. Indeed, Government bonds have risen in price, driving yields down. In the US, investors are pricing in several possible interest cuts by the Federal Reserve over the next 18 months.
This is clearly influenced by fears of a full-blown trade war between the US and China. Mark Carney, Governor at the Bank of England, did not mince his words when he said that an “…intensification of trade tensions has increased the downside risk of global and UK growth.