Upgrade for hot sector amid ‘clear evidence of a cyclical recovery’

The summer recovery of UK recruitment stocks has been backed to continue after a City bank today upped its Hays (LSE:HAS) price target by 58% and named Michael Page (LSE:PAGE) its European top pick.

Deutsche Bank said the improved stance, which also saw it move Robert Walters (LSE:RWA) to a Buy rating and bolster its valuation estimate of SThree (LSE:STEM), followed evidence that trading among Europe’s biggest firms has been more resilient than it had expected earlier in the year.

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A combination of the conflict in the Middle East and fears that AI could structurally challenge sector business models caused shares to hit multi-year lows in June.

Companies in Deutsche Bank’s coverage, which also includes Adecco Group AG (SIX:ADEN) and Randstad NV (EURONEXT:RAND), fell by an average of 40% from the start of 2026 before the sector’s second-quarter reporting period boosted sentiment.

The bank said: “Improving momentum across the US, Asia and Southern Europe now provides clear evidence of a cyclical recovery. Together with cost savings, this should support stronger profitability.”

Today’s report noted that the sector’s proportion of revenue in growth on a quarterly basis had improved to 50%, which compares with 10% at the start of 2025.

This ranges from Adecco at 77% and Randstad at 60%, whereas the best of the UK-listed stocks is Michael Page at 50%. Hays has lagged peers at 30%, which reflects its high exposure to economic challenges in Germany, the UK and Australia.

Despite this, the FTSE 250-listed shares of Hays are double their record low price of 30p on 22 June and now 20% higher for the year-to-date.

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This compares with current year declines of 8% for Robert Walters and 12% for Michael Page after they endured the worst peak-to-trough share price performances.

Deutsche Bank said this was because investors wanted a foothold in the sector through exposure to the improving temporary recruitment segment rather than later cycle permanent market exposure which, once established, typically provides greater earnings momentum.

It sees further upside of 40% on Hays shares through a new price target of 95p, having raised its earnings estimates on the back of last month’s annual results.

Hays’ net fees decline eased to 8% on a like-for-like basis while underlying profits rose 9% to £35.1 million and the company pegged the 26 November dividend payment at 0.29p a share.

It is exiting several countries in its Rest of the World portfolio, which together with further structural cost savings has the potential to increase operational gearing as markets recover.

Deutsche Bank added: “Hays’ high exposure to Germany also makes it an attractive thematic investment if government spending and labour reforms strengthen confidence and stimulate investment.”

The business model remains highly cash generative, with a capital allocation framework focused on investment, a strong balance sheet, funding of affordable dividends and the return of surplus cash to shareholders through special dividends and share buybacks.

On Michael Page, the bank said that the 75% of its net fees from permanent recruitment offered attractive leverage to a sustained recovery.

Only 12% of Michael Page’s net fees were in growth in the first quarter of 2025 but a gradual normalisation in Greater China, Latin America and Spain, followed more recently by Italy and Mexico, has increased this proportion to 50%.

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With momentum expected to broaden further in the third quarter despite continued weakness in Northern Europe and the UK, management recently reiterated its confidence in meeting the City’s full-year consensus operating profit forecast of £28 million.

The bank has increased its price target to 355p, which represents a further upside of 68% after the stock rallied from a multi-year low of 103p to 210p in the period since 22 June.

FTSE All-Share firms Robert Walters and the science and technology-focused SThree have target price upsides of more than 25% to 160p and 360p respectively.

The latter’s shares have risen 46% so far in 2026 after higher exposure to the more resilient temporary and contract recruitment market aided its performance earlier in the year.

The new estimate implies a 15% discount versus its historic average multiple of enterprise value-to-net fees, whereas the gap on Robert Walters is still 60%.

Lee Wild, head of ii editorial, owns Hays shares