Morgan Stanley labels Michael Page guidance on net fees "conservative"

LONDON (ShareCast) - Shares (Berlin: DI6.BE - news) in recruiter Michael Page are trading below their average mid-cycle earnings multiples and analysts' estimates have now come down to sensible levels. Hence, owning stock in the later-cycle staffer "makes sense" to Morgan Stanley (Xetra: 885836 - news) analysts Toby W Reeks and Allen D Wells, as they explained in a research note e-mailed to clients.

Indeed, they admit the shares have performed strongly even in the face of the expected decline in analysts' earnings forecasts. In anticipation of that, in January they lowered their recommendation to equal-weight.

In Friday's research note they lower their 2015 and 2016 estimates for the firm's earnings per share (EPS) by between 5% to 10%.

However, they caution that should be taken in the context of highly cyclical earnings. Michael Page now trades on a 2016 forward price-to earnings ratio of 18.8 versus an average value of 20 times.

The broker highlights how the company's guidance for 40-50% incremental net fees to EBIT drop-through rate seems conservative in 2015.

A 2016 yield of 7% is not currently factored into the share price either.

On the broker's own estimates the recruiter should seek to return between £50 to £60m in 2015 and 2016, providing for a dividend yield of 5% to 7%.

Michael Page will update the market on its returns criteria (size, buyback or cash return) at the 1H results.

Lastly, Morgan Stanley upped its price target on the shares to 590p from 500p previously. The recommendation now returns to overweight.