Credit Suisse raised its rating on the recruitment firm to ‘outperform’, the equivalent of a 'buy' rating, from ‘neutral’ but cut its target price to 575p from 600p.
Last week, the company said it expects full-year operating profit to exceed market forecasts after strong growth in international job markets and an improvement in the Brexit-hit UK division bolstered third quarter results.
Gross profit in the third quarter rose 17.2% to £207.7mln from £177.2mln the same period a year ago, led by demand in Europe and the Asia Pacific.
“We think good growth momentum from Q3, where it outperformed the peer group, falling costs as transformation/technology projects finish, and positive support from rising wages offset both the macro risks and potential longer term challenges from technology-led substitutes,” Credit Suisse said.
Credit Suisse thinks a series of costs will fall out in the coming years, which will support margins. Costs include £6mln of transformation charges in 2019, reduced amortisation related to the PRS global IT system from 2019, tech restructuring savings, and non-operational savings mainly related to lower support costs for new fee earners.
“If Page were to hit its conversion margin target in 2021 (assuming 8% CAGR gross profit growth) this would add 40% to our 2021E EBITA estimate,” Credit Suisse said.
“Page is a cyclical business and will see operational and share price pressure, in our view, if end markets notably weaken. We think, however, that the potential value creation (supported by internal initiatives) and track record of performing strongly in the later stages of a cycle more than balance the risks.”
Credit Suisse downgrades SThree
Credit Suisse downgraded rival SThree PLC (LON:STHR) to ‘neutral’ from ‘outperform’ and lowered its target price to 375p from 445p, citing an unattractive risk-reward profile. It said SThree saw improved growth in the third quarter, driven by European markets, but expects this to moderate in late 2018 and in 2019 as comparables become more challenging.
“The UK business has struggled with 10 quarters of contraction and we think changes to IR35 legislation in the UK private sector could negatively impact future growth and profitability,” the broker said.
“In addition we think its lower end IT recruitment will continue to see pressure on pricing that will limit group operational leverage. The net result is slowing growth, rising risks in the UK, pressure on pricing and, consequently, limited operational leverage above and beyond the re-location savings.”
Credit Suisse cautious on Hays, positive on Robert Walters
The broker has a ‘outperform’ rating on Robert Walters PLC (LON:RWA) as it believes valuation and support from margin-accretive growth in Resource Solutions is attractive. It cut its target price on the stock to 700p from 850p.