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Shares in the highly cyclical recruitment sector were hardly hovering at racy levels last year when the sub-prime crisis broke. And when concrete evidence began to emerge that the UK economy was slowing – and the property sector in particular creaking – its unpopularity with investors was accentuated. The flight during the autumn was dramatic. Some of this was justified, but much of it was driven by fear. And what most of the market seems to have missed is that many recruitment companies have seriously de-risked their enterprises by focusing on niche areas or global hotspots.

Resilience in niches

A perfect example is AIM-listed Empresaria, which is focusing on emerging regions such as the newly liberalised Japanese market and the emerging economies of the Far East. Its expansion has been rapid, having opened 25 new offices in 2007, with profitable acquisitions in Germany and Chile taking the £26.7 million outfit into 18 countries. The group now derives more than a third of its sales overseas and, as earnings are set to double this year, it is one to watch.

More UK focused is Hexagon Human Capital, down from a year’s high of 196p to 146.5p, despite its defensive qualities. Led by the experienced Jonathan Wright, it is growing strongly in the high-margin executive search market. A focus on interim management, which involves helping companies reduce costs in lean times and bring in business in good times, gives Hexagon a very attractive business mix.

Staffline, a blue-collar specialist that appeals to cost-conscious clients in the food sector, is another prospect with defensive characteristics. OnSite, Staffline’s model of outsourced yet on-site human resource departments, now delivers 70 per cent of its sales and underpinned a lucrative 2007. Despite consistently upbeat announcements, the shares have dropped to 121.5p from 187p since August and seem unfairly unloved on a prospective price-to-earnings ratio of less than ten times.

Gerstein grapples with Greatfleet

Over at legal and IT specialist Greatfleet, new no-nonsense CEO Colin Gerstein has effected a management clear-out and embarked on a restructuring after discovering accounting practices he thoroughly frowned upon. Although he has a job ahead of him to restore investor confidence, Gerstein remains upbeat, flagging up ‘no shortage of business’. He argues that Greatfleet is ‘the size of business that can remain impervious to the vagaries of the economy’. Be that as it may, the shares, down from 16.5p in August to 3.75p, are for risk takers only, at least until any renaissance becomes apparent.

Being too specialist can sometimes work against you, however. Just ask property- and construction-focused Prime People, whose price has fallen to 71p from a year’s peak of 132p with the market taking a gloomy view of prospects in the property sector. This is, perhaps, unfair as interim results to September showed profits up 31 per cent to £1.02 million, as Prime grew in the UK and made ‘excellent’ progress internationally. Healthy cash generation allowed for an increase in the interim dividend to 1.35p and means that the shares offer a hearty five per cent yield based on last year’s 3.5p total pay-out.

Other high-yielding plays include two technical staffers: Matchtech yields a prospective four per cent based on a forecast 14.4p dividend; and SThree, which has slipped back from north of £5 in July to £2, yields a historic 3.7 per cent, with yield returns of 4.4 per cent and five per cent forecast for the next two years.

Consolidation to come

As for the wider sector, recent lowly prices could spark a round of consolidation. Last summer, well-funded technology staffer Spring spent £27 million cash on quoted peer Glotel, whose profits had nearly halved in the previous year. Spring, at 48.5p, still has £35 million cash in its coffers and trades on a relatively undemanding forward multiple of 12, based on forecast earnings of 4p from profits this year of £7.7 million.

Lower down, erstwhile market darling Imprint, a multi-disciplinary business building a presence in Asia and the Middle East, is being taken out by AIM-peer Hydrogen in a 3i-backed all-share offer valuing Imprint at £45.9 million. As Seymour Pierce’s Kevin Lapwood says, ‘If Hydrogen manages to acquire the remaining Imprint businesses at the current level, including the excellent Morgan McKinley operations in the Far East, it will be the equivalent of daylight robbery.’