Broker snap: Credit Suisse assesses impact of euro recession on business services

29th Nov 2011 10:22

Credit Suisse has reassessed its ratings and forecasts across the business services sector to reflect a more challenging environment in which it envisages Europe falling back into a recession in the fourth quarter.The broker said: "Our base case FY12-13 EPS estimates fall by an average of 4-5% to reflect a recession in Europe and continued growth in the US and RoW [Rest of World]. We have made a broad range of changes with essentially limited cuts to relatively non-cyclical businesses with little or no European exposure, and larger reductions for European focused cyclicals."Credit Suisse also notes that earnings forecasts could come down by a substantial additional amount if a "significant credit event" prompted a deep global recession."We continue to prefer the outsourcing sector (Capita, Serco, MITIE - upgraded to outperform, Carillion) where stocks have limited European exposure, below average cyclicality and are trading at attractive multiples with positive catalysts approaching." Furthermore, the broker says that growth will continue at Intertek, Experian and Aggreko, albeit at a slower rate. These stocks are also given an outperform rating.Unsurprisingly given the bearish outlook for the European economy, Credit Suisse stays cautious on businesses with high levels of exposure to the region. The broker keeps its underperform rating on Michael Page, saying that trading is "vulnerable to weakening economic conditions".BC