PageGroup downgraded as permanent hiring volumes expected to remain at low levels

UBS has downgraded PageGroup PLC to 'neutral' from 'buy', cutting its price target to 250p from 400p, citing persistent low permanent hiring volumes exacerbated by macroeconomic uncertainty and cost pressures. The firm significantly slashed PageGroup's EBITDA forecasts by 40-65% through 2027 and modeled a 33% dividend reduction, projecting double-digit gross profit declines in Q2/Q3 2025. This reflects a prolonged downturn for the recruitment sector, with PageGroup's EBIT expected to remain well below 2022 peaks despite its strong net cash position.

Analysis

UBS has downgraded PageGroup PLC to 'neutral' from 'buy' and slashed its price target to 250p from 400p, reflecting a deeply pessimistic outlook on the recruitment sector. The downgrade is predicated on the expectation that the prolonged downturn in permanent hiring, now lasting 2.5 years, will persist due to rising macroeconomic uncertainty and cost pressures, a view reinforced by a recent profit warning from peer Hays. Consequently, UBS has made severe cuts to its financial forecasts, reducing projected EBITDA by 40-65% through 2027 and forecasting a double-digit year-on-year decline in gross profit for Q2 and Q3 2025. The company's EBIT is now expected to be just £23 million in 2025, a stark drop from the £196 million peak in 2022, with only a modest recovery to £51 million projected for 2026. Despite these headwinds, the analysis notes PageGroup's strong net cash position, though even this is not enough to prevent a modeled 33% dividend cut.

Key Decisions for Investors

• Given the downgrade to 'neutral' and the severe 40-65% cut to EBITDA forecasts, investors should recognize that a return to peak profitability is not anticipated in the medium term, significantly capping the stock's upside potential.
• Prospective investors should exercise caution, as the report signals further deterioration in hiring markets and projects double-digit declines in gross profit for the upcoming quarters, suggesting it may be prudent to await signs of stabilization before establishing a position.
• While the strong net cash position offers a buffer, investors must closely monitor management's ability to protect the dividend, as UBS has already modeled a 33% cut which could face further pressure if the downturn deepens or cost-cutting measures prove insufficient.