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Hoodless Brennan comments on Michael Page

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Michael Page (MPI.L), 17/08/09,  HOLD, 320p

Holding its own

Michael Page results were challenged as expected yet the group managed to record a small profit despite consolidating some restructuring costs as normal operating items. In fact this is probably a valid approach for the cyclical, given that the size and scope of its workforce is constantly changing to reflect market circumstances.

 

Revenue of £364.6m was down 27%, operating profits were £5.6m against £84.9m. Basic EPS was 8.8p down from 18.3p at the interim last year, while the interim dividend was maintained at 2.88p.

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While there is little good news in terms of outlook with market conditions remaining weak, particularly for permanent recruitment, the group is accustomed to dealing with downturns and has cited ‘similar behavior from our clients, candidates and competitors as we witnessed in previous economic slowdowns’. This experience should prove invaluable in emerging from the recession in a strong competitive position.

 

Nevertheless the group looks to be in a good place to capitalize on improvements in market conditions when they improve, it has a profit share model, which leads its teams to continue to reduce their cost base to reflect lower levels of activity.

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The group even expects to make selective hiring in order to increase market share. “Where we see opportunities, we have continued our strategy of diversification, rolling out new disciplines and opening new offices.”

 

Value considerations. The strong balance sheet means that the company should be in a strong position to emerge from recession and, with cash of £99m on the balance sheet, has no debt concerns. Full year estimates asking for around £10.2m PBT does not seem too demanding, though EPS of around 2.5p, hardly justifies the 315p share price.

 

While we would expect conditions to level off soon, it would seem too early to call the bottom and shares have recovered quite strongly since Q2, leaving them looking at least fully valued. HOLD

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