We don’t support this browser anymore.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

RBC stays positive about PageGroup despite profit warning

Wed 10 July 2024 09:33 | A A A

No recommendation

No news or research item is a personal recommendation to deal. Hargreaves Lansdown may not share ShareCast's (powered by Digital Look) views.

(Sharecast News) - PageGroup's profit warning this week wasn't enough to deter RBC Capital Markets from changing its 'outperform' rating on the stock, saying it expects a "sharp recovery in earnings".

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.

    The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website is not personal advice based on your circumstances. So you can make informed decisions for yourself we aim to provide you with the best information, best service and best prices. If you are unsure about the suitability of an investment please contact us for advice.