More pain ahead for local recruitment stocks

By Brian Gorman

LONDON (Reuters) - Investors spooked by burgeoning unemployment have punished shares in UK recruitment companies and pushed the sector's discount to the broader market to an 18-year high, but the stocks could have further to fall.

Of the 20 biggest UK-listed companies in the sector, the shares of 11 are down more than 50 percent, with recruiters specialising in the financial sector hurt more than most amid a credit crisis that has roiled global markets.

Michael Page and Hydrogen Group, who have a financial sector focus, have issued profit warnings in recent weeks, but the meltdown is across the board.

Work Group, Prime People and OPD are among others in the sector to have warned.

"We're just seeing the tip of the iceberg on unemployment," said BNP Paribas analyst Oliver Johnson.

"Valuations are cheap, but it's too early to buy. In the support services sector, there are other companies with better earnings visibility in 2009," he said.

The UK Office for National Statistics said on Wednesday that the number of unemployed people increased by 137,000 over the quarter ending October to reach 1.86 million, the highest since the three months to December 1997.

Many forecasters, including Capital Economics and the Confederation of British Industry say unemployment in the UK will reach 3 million by 2010 or 2011.