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PageGroup surges but stays cautious on Brexit effect

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Recruiter PageGroup jumped to the top of FTSE mid-cap leaderboard after beating expectations with record quarterly profits even while warning of Brexit challenges ahead.

The jobs group formerly known as Michael Page was updating investors as official UK data released on Wednesday showed labour market robustness with unemployment hitting decade-long lows.

PageGroup’s earnings growth was mainly based on its performance in overseas markets. The company struck a cautious tone on its outlook by noting “there remain a number of uncertainties as we continue through 2017, including the impact of Brexit in the UK [and] elections in Europe”.

But its shares surged 7.1 per cent to 475.4p on Wednesday to head the FTSE 250 Mid-cap index and also helped to boost sector peers such as Hays, which rose 3.4 per cent to 168.9p.

“Although macro uncertainties remain, it appears that the company is navigating these better than we had expected,” said Rahim Karim, of Liberum. “In addition to an extremely strong performance in Europe, and France in particular, the UK business appears to be past the worst.”

The broker upgraded its full-year earnings and share price targets, while Jefferies added that conference call discussions had dwelled on its UK prospects.

“Management believe candidate and client confidence levels remain [affected] by uncertainty surrounding Brexit; SMEs are hiring currently but multinationals are cautious; sterling devaluation has benefited the manufacturing/engineering sector [while] trading could be tough in the fourth quarter,” said Jefferies’ Kean Marden.

Although the worst of the geopolitical risk-off tone appeared to be easing for global markets, the FTSE 100 index retreated 0.2 per cent to 7,348.99, hobbled by a resilient performance for sterling. In contrast, the more domestically focused FTSE 250 outperformed and rose 0.6 per cent to 19,423.94.

Tesco was the sharpest faller on the FTSE 100, sinking 5.7 per cent to 190.1p, as investors turned sour on results that were generally well received by analysts as it reported its first full-year increase in UK like-for-like sales in seven years.

The results had been well-trailed and the share price performance on Wednesday mostly surrendered gains of the past week.

“Tesco has not quite struck a satisfactory tone on the outlook for inflation and the impact on consumer behaviour,” said Ken Odeluga of City index, adding: “This is one reason for the cautious shareholder reaction to what is a solid set of annual results overall.”

He also noted there were “wider investor misgivings” over its £3.7bn takeover of wholesaler Booker. However, Daniel Ekstein, of UBS, stuck with upbeat forecasts, noting: “We think Tesco’s recovery is sustainable and estimate it will hit the top end of its medium-term 3.5-4 per cent operating margin target with a 30 per cent share price upside as a result.”

Its supermarket rivals were pushed lower in sympathy with J Sainsbury slipping 2.7 per cent to 257.9p and Morrison losing 1.7 per cent to 232p.

Miners were the main drag on the FTSE as weakness in metals, led by iron ore and copper, hit the large producers. Rio Tinto fell 4 per cent to £31.45, Anglo American was 3.9 per cent lower at £11.71 and BHP Billiton slipped 3.5 per cent to £12.68.

Engineer Rolls-Royce climbed 2.5 per cent to 830.5p to top the FTSE leaderboard as it benefited on Tuesday from strong performances among European industrial groups.



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