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(Sharecast News) - Morgan Stanley reiterated its 'underweight' rating on PageGroup on Tuesday and slashed the price target, as it "neutralised" its rating on recruitment peer Hays to 'equalweight' from 'underweight'.
In a research note on European staffers, the bank cut its price target on PageGroup to 110p from 195p and on Hays to 35p from 44p.
In the same note, it also downgraded Adecco to 'underweight' from 'equalweight' and cut the price target to CHF15 from CHF20.50. Randstad suffered the same rating downgrade, while the price target was cut to 25.50 from 26.
Despite the recent improvement in organic growth across the staffing space, mainly driven by better temporary staffing, Morgan Stanley reiterated its cautious stance on the sub-sector.
"The macroeconomic and geopolitical environment has become more uncertain and could take a toll on the recruitment/ staffing market, something we think has not yet been fully reflected in consensus expectations," it said. "Concerns over the AI risk in the mid-term also remain and could continue to weigh on valuation, together with short-term macro headwinds."
Morgan Stanley said the lack of positive share price reaction to recent organic growth beats across the space suggests investors are looking for gross margin recovery and better operating leverage to turn more positive.
"However, we believe the macro/geopolitical backdrop and recent labour market data point to a risk of further deterioration of perm recruitment, which would in turn continue to put pressure on staffers' gross margin and operating profit. We therefore see limited positive catalysts for staffing names to re-rate over the coming earnings season."
Within generalist staffing, the bank shifted its preference to Randstad over Adecco on larger downside risk to expectations for the latter, combined with elevated leverage and risk of potential shareholder dilution from scrip dividend.
It also neutralised its rating on Hays to EW and reiterated its 'underweight' on PageGroup, "which has the largest exposure to perm recruitment and higher risk of additional dividend cuts, in our view".
At 1546 BST, PageGroup shares were down 0.6% at 123.30p, Hays was 2.4% lower at 35.38p, Adecco was off 1.2% at CHF16.38 and Randstad was 1% higher at 27.10.