RBC stays positive about PageGroup despite profit warning

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.