Market Report: Michael Page advances on recovery hopes

Michael Page International was in focus last night amid hopes that forecasts would rise as the recovery resuscitates the job market, bearing dividends for staffing companies.

Deutsche Bank said consensus forecasts failed to adequately capture the likely strength of the recovery, with current estimates pointing at zero gross profit growth for Michael Page in 2010. Permanent recruitment, on the other hand, tends to rise by 10 to 20 per cent for every one per cent that real GDP expands above the growth in long run productivity, Deutsche explained. Current estimates suggest that Michael Page will encounter either significant pricing pressures or, on average, no growth in GDP above long run productivity in its markets.

"That strikes us as too negative a view and that this is significantly underplaying the likely recovery in Michael Page... as growth in key markets in the first or second quarter should imply full-year growth for 2010," the broker said, adding its estimate of 13 per cent gross profit growth "implies only around 2.5 per cent real GDP growth for 2010 for Michael Page's markets".

The broker went on to revise its stance on Michael Page to "buy", helping the share price rise by two per cent, or 8.2p, to 410.3p. The stock was also supported by the read-across from the latest ADP US unemployment report, which said that American private sector employers shed 84,000 jobs in December, significantly fewer that the 145,000 lost in November. Michael Page's peer Hays, which is rated "hold" at Deutsche Bank, and which was upgraded to "outperform" at Exane BNP Paribas, also closed up last night, rising by 2.1p to 109.5p.

Overall, the FTSE 100 was broadly unchanged at 5530.04, up 7.54 points, while the FTSE 250 rose by 32.44 points to 9589.53. Retailers came under pressure after Marks & Spencer failed to impress with its trading update, posting its first rise in sales for over two years but lagging behind some rivals. The stock was the weakest of the blue chips, declining by almost seven per cent, or 27.5p to 377.4p. Home Retail Group, the owner of Argos, lost 2.2 per cent, or 6.4p, to 283.5p; Kingfisher declined to 230p, down 2p.

The supermarket giant Tesco was two per cent, or 8.4p, behind at 412.5p after Jefferies switched its stance on the stock to "hold" from "buy", albeit with a revised 440p target price, compared to 420p previously. WM Morrison Supermarkets, which is one of the broker's top picks in the sector, was also unsettled last night, declining by 1.5p to 276.4p as investors moved out of retail-related issues.

Elsewhere, the Royal Bank of Scotland continued to shine, rallying by 3.6 per cent, or 1.28p, to 36.68p. There was some talk of short covering, and speculation regarding the possibility of RBS mulling a bond buyback programme to boost its core tier 1 capital ratio. In the wider sector, Lloyds Banking Group was 0.56p higher at 54.59p, while Barclays swung to 307p, up three per cent or 8.9p. HSBC also moved up, adding 3.4p to close at 740.4p, but Standard Chartered fell back, declining by 1.1 per cent, or 17.5p, to 1619.5p.

The miners continued to draw steam from recent gains in metals prices, with Kazakhmys rising to 1436p, up 2.8 per cent, or 39p. Rio Tinto strengthened by 2.6 per cent, or 91p, to 3633.5p, while Xstrata was 3.5 per cent or 41p ahead 1229p. Anglo American gained 1.7 per cent, or 48.5p, to 2863.5p; Lonmin rose by 1.8 per cent, or 37p, to 2090p; and the Eurasian Natural Resources Corporation closed 9p higher at 979p. Oil prices see-sawed, pressuring the likes of Royal Dutch Shell, which lost 19.5p to 1930.5p.

Morgan Stanley dampened sentiment around Petrofac, the oil services group, which was 2.5 per cent, or 26p, behind at 1005p after the broker switched its stance on the stock to "underweight" from "equal weight", albeit with a revised 940p target price, compared to 910p previously. Morgan Stanley pinned the change of heart on the strong rally last year, and its belief that the company "will struggle to continue to surprise positively and find valuation demanding".

Further afield, the software group Micro Focus International, up almost four per cent, or 17.2p, at 482p, was buoyant following a push from Citigroup. "The acquisitions of Borland and Compuware's testing businesses in 2009 have taken Micro Focus into the high-growth application analysis and testing markets," Citi said, initiating coverage with a "buy" rating and a 650p target price. "We see cross-selling opportunities enabling Micro Focus to gain market share."

BSS, the plumbing and heating firm that sells boilers through its PTS division, was also strong, gaining 3.5 per cent, or 9p, to 267p after Collins Stewart highlighted the likely boost from the Government's boiler scrappage scheme. "Up to 125,000 households will be eligible for a £400 refund for the cost of upgrading an old boiler. The scheme applies to homeowners who have a G-rated boiler – according to the Government there are 3.5 million," the broker said. "Combined with the current weather, rising bills and several discounts (like British Gas are offering £300 off the price of a new boiler) we expect... demand will prove quite strong over the first quarter."