EasyJet descends despite positive guidance, and recruiters PageGroup and Robert Walters under pressure

Tuesday, October 8, 2019 - 09:57

“Taking its cue from robust trading in Asia overnight, the FTSE 100 continued to gather some ground on Tuesday, albeit only by a handful of points,” says AJ Bell Investment Director Russ Mould.

“The situation was certainly looking healthier than it had at the end of last week though, as the index traded above the 7,200 threshold.

“In a widely expected move HKEX dropped its £32 billion bid for the London Stock Exchange. The deal looked doomed from the start given the LSE’s opposition to the deal, a lack of support from mainland China and the regulatory and political sensitivities involved."

EasyJet

“The descent in EasyJet shares this morning, despite the budget airline flagging that full year results will be at the upper end of guidance, reflects a few factors.

“Firstly the shares have performed strongly of late as the collapse of Thomas Cook as well as strikes at rivals British Airways and Ryanair, the latter of which were specifically flagged by EasyJet as being beneficial, have taken capacity out of the market.

“The airline industry is such a competitive market that it really amounts to a zero-sum game, with participants gaining when others do poorly and vice versa.

“With this in mind, the market appears to have already been expecting EasyJet to issue a fairly bullish statement and so the actual news may not have been as impressive as some investors wanted.

“There was also a reminder in today’s update of the extent to which the company is at the mercy of movements in fuel prices and foreign exchange, with a currency headwind of £14 million.

“The outlook statement offers little reason for genuine excitement and, although the company has done what it can to prepare for Brexit by meeting the criteria that EU investors should represent more than 50% of its shareholder base, there still remains considerable uncertainty over the impact the UK’s exit from the EU might have longer term.”

Pagegroup / Robert Walters

“The fact that PageGroup and Robert Walters have both warned about major headwinds in the recruitment space and reported a big slowdown in earnings growth shouldn’t be a surprise.

“The large amount of gloomy economic data including deteriorating purchasing managers’ indices should give you some very strong clues about corporate confidence. Companies presented with a negative backdrop will think hard about their spending and that includes staff costs.

“The first step in a bleak situation is to normally hold off from replacing any staff who have moved on to another job. The second step is to make actual job cuts and it feels like we may be seeing the first small signs of the latter given talk of HSBC slashing 10,000 positions, HP reducing up to 16% of its workforce and British American Tobacco cutting 2,300 jobs.

“While PageGroup and Robert Walters are global businesses, they’ve both reported shocking numbers for the UK with declining profit. Brexit must be to blame as companies avoid making decisions on recruitment amid all the uncertainty. PageGroup has also flagged weaker confidence in China because of the trade war with the US and social unrest in Hong Kong.

“Interestingly one of PageGroup’s weakest spots was Michael Page, its division which finds candidates for more senior roles. This year has seen a higher-than-average number of chief executives step down from FTSE 100 companies. While some will have already been replaced by internal candidates, many FTSE 100 companies will have turned to recruitment agencies to help find the best people to interview as replacement CEOs.

“Figures across the pond also imply a similar trend in the US. Therefore one would have thought so-called executive search providers would be in strong demand.”


These articles are for information purposes only and are not a personal recommendation or advice.


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.