HSBC boosts target on Page Group, hails profit growth and capital discipline

HSBC hiked its target price for Page Group shares sharply higher and reiterated its 'Buy' recommendation as the company's bottom line growth above its own estimates forced the broker to concede that it may have been to "conservative".

On top of that, HSBC reiterated its long-held view that the specialist recruiter's capital discipline justified a higher multiple for its shares than for those of its peers.

"Our case for Page Group has been that even in slow growth the capital discipline warrants better market relative multiples, and growth could be better. We have not changed that view, but these results do suggest that growth may be stronger than we had, conservatively, assumed," HSBC said.

Page Group's gross profit growth rebounded to 9.1% for the first quarter of 2017, from -3.8% in the last three months of 2016.

The broker also highlighted how gross profit growth in the UK had improved from down 6.5% year-on-year in the final three months of last year to flat in the first three months of this year.

Client spend with Page Group had improved in March with the approval of corporate clients' new budgets.

Nonetheless, investors would be wise to stay cautious because the timing of Easter likely impacted on its profit growth and the business climate continued to be "considerably uncertain", HSBC said.

"There remains some considerable uncertainty around Brexit, European elections and the emergent policies of a new US administration. How these factors may affect labour market demand is a risk."

Even so, the broker raised its estimate for the company's gross profit growth at constant currencies in 2017 from -0.4% to 4.8%.

It also lifted its 2017 estimate for Page's earnings before interest, taxes and amortisation from £87m to £108m.

As a result of those revisions the target price went from 490.0p to 603.0p for an unchanged 2017 price to earnings multiple of 24 times HSBC's estimated 25.1p of EPS for the company.