RBC stays positive about PageGroup despite profit warning
Nevertheless, the broker cut its target price for the shares from 540p to 510p after lowering its profit forecasts for the next two years on the back of Tuesday's second-quarter trading update from the recruitment firm.
PageGroup said gross profit fell 12% versus the same period a year earlier to £224m, and weaker-than-expected trading in June, along with tough macro conditions, mean it was scaling its full-year operating profit guidance back to £60m, down from £118.8m last year and below estimates of £90m.
RBC said its downwards revisions to forecasts reflect around 7% lower expected net fees for the next two years, however they come "at very high drop through to the EBITA level as PAGE continues to invest in the group strategy by broadly maintaining its platform of experienced fee earners".
"Though this leads to short-term earnings pressure, this high operational leverage has the potential to snap back positively when market conditions eventually improve," the broker said.
RBC said its new target price still represents "attractive upside potential on a total shareholder return basis".
"We think PAGE's seasoned management team are making the right call to preserve consultant capacity, creating the pre-conditions for a sharp recovery in earnings when client and candidate confidence improves."
Shares were down 0.3% at 404.4p by 1109 BST on Wednesday, following a 6% plunge the day before.
Disclaimer & Declaration of Interest
The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion.