On Thursday, HSBC has upgraded PageGroup Plc. (PAGE:LN) (OTC: MPGPY) from Hold to Buy, adjusting the price target to GBP5.15 from the previous GBP4.30. The revision reflects a potential recovery in the labour market starting in the second quarter of 2025, despite the current high viscosity, or lack of job market fluidity.
The analyst from HSBC noted that labour markets perform optimally when job turnover is high, which is not the case at present. Lower churn rates have prompted the firm to reduce its estimates due to a weaker market. However, the analyst anticipates that the share prices of staffing firms like PageGroup have fallen to levels that already factor in a possible recession.
While acknowledging the risk of recession and the absence of positive signals from leading indicators, HSBC expects that the share prices of staffing companies will undergo a reevaluation. The report includes a detailed analysis, spanning pages 13 to 18, exploring both the base case scenario and a "What If... Recession" scenario for estimates and valuation.
HSBC's stance is that the potential upside for PageGroup's shares should adequately reflect the recession risks and the corresponding share prices. The firm believes that PageGroup presents the most favorable balance of risk and reward, leading to the upgrade to Buy with a new target price of 515p.
In other recent news, Pagegroup Plc has been in the spotlight as both Deutsche Bank and RBC Capital adjusted their price targets for the company. Deutsche Bank lowered its target to £5.50 from £6.00, while maintaining a Buy rating. This followed a report detailing a year-over-year decline of 12% in Pagegroup's group net fees, with a notable decrease in consultant headcount.
RBC Capital also reduced its price target from GBP5.45 to GBP5.40, and then further to GBP5.10, citing challenging trading conditions. However, the firm continues to hold an Outperform rating on the company's shares.
Analysts at RBC Capital revised their earnings per share (EPS) estimates for Pagegroup for fiscal years 2024 and 2025, lowering them by 34% and 21% respectively. Despite these adjustments, the firm expressed confidence in Pagegroup's strategic measures to safeguard its revenue-generating workforce and its potential for a rapid recovery in earnings.
The company's management has signaled only minor adjustments in headcount going forward, indicating a strategy to protect potential for profit recovery should market conditions improve.
InvestingPro Insights
Adding to HSBC's optimistic outlook on PageGroup Plc. (OTC: MPGPY), recent data from InvestingPro provides additional context to the company's financial position. Despite the current market challenges noted in the HSBC analysis, PageGroup maintains impressive gross profit margins, with a gross profit margin of 49.32% for the last twelve months as of Q2 2024. This aligns with one of the InvestingPro Tips highlighting the company's "impressive gross profit margins."
However, reflecting the current market conditions, PageGroup's revenue growth has been negative, with a -8.43% decline over the last twelve months. This data point supports HSBC's decision to reduce estimates due to a weaker market. Additionally, the company's P/E ratio stands at 23.16, suggesting that investors are still pricing in some growth expectations despite the current headwinds.
It's worth noting that PageGroup is trading near its 52-week low, which corroborates HSBC's view that staffing firms' share prices may have already factored in potential recession risks. This could present an opportunity for investors who share HSBC's optimistic outlook on the company's future prospects.
For readers interested in a more comprehensive analysis, InvestingPro offers 5 additional tips and a wide range of financial metrics for PageGroup. These insights can provide a deeper understanding of the company's financial health and market position as the recruitment sector navigates through current economic uncertainties.
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