Why look at the Personnel sector? 

This is not in general a sector that fits my personal style of trading, given its traditionally very cyclical nature and also typically low profitability (as measured by operating margins).

But, the very cyclicality of the personnel sector can also give rise to contrarian value opportunities from time to time, as the sector can fall very much out of favour. 

Today, I think that this sector has a lot going for it: Brexit (in whatever form it finally takes) is very likely to weigh on the ability of UK-based companies to recruit suitably-qualified employees, given that Brexit was largely about "taking back control of immigration".

Note that this does not mean stopping immigration to the UK, merely controlling it as opposed to having open borders for any EU citizen to come and work freely in the UK. 

In the short-term, the Brexit vote is already having a significant effect on EU immigration, judging by latest statistics which demonstrate that Eastern Europeans in particular (from Poland, Romania and Bulgaria) are not coming to the UK in anything like the numbers they were prior to the referendum vote. 

1. UK immigration from EU falls5b14ee99bdeb2UK_immigration_EU.JPG

There have been reports of staffing pressures already arising in the National Health Service and in agriculture as a result of lower EU migration to the UK. At the same time, UK employment has reached a historic high of 75.6% of the 16-64 population, as of February this year (Chart 2).

2. Record UK high employment 


Source: ONS

This is the result of continual improvement in the overall employment market over the last year including a sharp drop in unemployment, as per Chart 3.

3. Quarterly and annual changes in UK employment


Source: ONS

Certain staffing companies are doing very well as a result of this tightening labour market, notably companies such as Harvey Nash (LON:HVN), in which I have a substantial shareholding. 

Harvey Nash is a classic Value-Momentum stock as per the Stockopedia ranks, with a 92 rank for each factor:

4. Harvey Nash ranks high on Value + Momentum


With rising consensus EPS estimates and a consensus…

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