Profession shaken but not stirred over stock price woes

What are the prospects for accounting service lines and how can they protect
the firms as the economy faces a downturn?

This question is worrying many in the profession. With economists predicting,
at best, a ‘correction’ in the UK’s prospects and at worst a recession, which
service lines are ‘recession-proof’ and which are not?

Tenon and Vantis have already suffered as a result of the credit crunch, not
because of damage to their revenues, but because the market has lumped them in
with the rest of financial services industry.

As a result, their share prices have plummeted. Tenon’s share price has
fallen from a high of 62p in November, to 52p last week. Vantis’ price was at
220p in July, just before the credit crunch began to impact. It is less than
half that now.

But as the industry’s only two quoted firms, and thus the first to be
affected by market sentiment, Vantis and Tenon are perhaps the best placed firms
to give a view about the prospects for the sector and what the crunch means for
the profession?

Analysts actually think that the firms have decent prospects in the event of
a downturn.

Vantis analyst Ben Archer at Charles Stanley says the stock is more
‘defensive’ (the term for a stock that investors turn to for stability in
troubled times) than some.

‘One of its biggest services is business recovery or business insolvency,
which is counter-cyclical, a compensation for downturn in other areas,’ he says.
‘We would expect tax advice to be defensive; corporate finance would be more
sensitive. The range of services and clients and sectors provides the diversity
and defensiveness.’

James Hamilton of Numis, Tenon’s house broker, says: ‘Tenon has changed the
mix of its business with significant growth in insolvency and recovery. This
area is counter-cyclical and should do much better in a recession with increases
in SME insolvency.

‘Clearly there are parts of Tenon which are pro-cyclical: corporate finance
is an obvious area where you could see revenues weakening in a recession. There
are other parts of the group ­ which could see lower revenues ­ clearly if you
are, as a personal individual not making significant capital gains, or your
income is reduced, your need for tax planning services is reduced.’

That may be the concern for some. Poor economic prospects mean fewer budding
entrepreneurs ­ at the heart of Tenon’s strategy, if not those of other firms.

Andy Raynor of Tenon remains upbeat. ‘It would be very arrogant for any
business to say it was recession proof ­ but we are pretty resilient,’ he says.

In tough times, he points out, it is more important than ever to know what
your financial position is. ‘If they are finding things tighter they will come
to the people they trust for advice.’

Neil Owen of Robert Half thinks some areas of accounting work may see lower
demand, but that the area is pretty robust in recruitment terms.

‘We have seen some issues of smaller hedge fund and larger banks
discontinuing funds in certain areas and therefore aren’t hiring ­ they’ve
stopped hiring accountants and middle and back-office staff.’

‘People are being a bit more strategic and putting relevant controls in
before they hire. Accountants are now seen as strategic business decision
makers, not just number crunchers. If companies need to cut costs… they will
need accountants. Good accountants, who are commercially aware and technically
aware, will always be in demand.’

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