ii view: is this bottom of the cycle for recruiter Hays?

Shares in this FTSE 250 company are down in line with the wider index year-to-date and offer a forecast dividend yield of over 4.5%. We assess prospects.

First-quarter trading update to 30 September

• Like-for-like net fees up 15% 
• Total fees up 19%
• Consultant headcount up 2% in the quarter and up 19% year-over-year
• Net cash of £185 million, down from £296 million at the end of June

Chief executive Alistair Cox said:

"We have made a good start to our financial year; fees were stable at high levels over the summer and September delivered a record month, and ended a record quarter. Volumes were sequentially stable overall in Perm and Temp, and fees benefited from improved margins and wage inflation. 

• Read about: Free regular investing | Opening a Stocks & Shares ISA | Cashback Offers

“We remain acutely focused on driving consultant productivity, and with a global management team experienced in managing through many cycles, I am confident we will deliver on the twin objectives of capitalising on our significant long-term growth opportunities, while navigating any shorter-term macroeconomic challenges."

ii round-up:

Recruiter Hays (LSE:HAS) today detailed a record quarter, with like-for-like fee growth of 15% beating City expectations of 13%, but with outlook comments pointing to a modest reduction in client activity outside of its core markets given the uncertain economic outlook. 

Fee growth of 26%, aided by skill shortages for its biggest market Germany, helped counter a 3% decline in public sector temporary fees for its Australian and New Zealand business following a recent change of government. 

Hays shares recovered from an early dip and traded flat at lunchtime, having come into this latest announcement down by close to a third year-to-date, similar to the FTSE 250 index. Shares for fellow mid-cap recruiter  PageGroup (LSE:PAGE) are down by around two-fifths in 2022. 

• Insider: these three shares are too cheap say company chiefs
• The 50% Club: bombed-out cyclical stocks to own when the market turns
• Harry Nimmo’s six tips for stock-picking success

Hays recruits across 20 specialisms, with information technology its biggest at around a quarter of total fees, followed by accountancy and finance at around 14% and then construction and property at just over a tenth.

A total of 11 countries generated record quarterly fees, including Germany, with like-for-like fees from permanent hires across the group up 16% and temporary hires rising 14%. Private sector hires helped push fee growth of 11% for its UK & Ireland business, while growth of 17% and 15% within the Americas and Asia aided total growth of 16% for its Rest of the World division. 

Broker UBS reiterated its ‘buy’ rating on the shares following the update, highlighting what it believes is a valuation which is already at the bottom through the cycle range.  

ii view:

Hays is a UK and overseas recruitment company. It employs around 13,000 staff in 253 offices across 32 countries. Founded over a century ago and headquartered in London, Germany currently generates its biggest slug of profit at just over a third, followed by Australia & New Zealand at close to a quarter and the UK & Ireland at around a fifth. Its business from permanent and temporary hires is relatively even although depends on the economic cycle. 

For investors, a cocktail of elevated inflation, rising interest rates and the Ukraine war on the doorstep of Europe all offer potential downward pressure on customer confidence to hire going forward. Rising costs for industry generally and including wages should not be forgotten, while currency movements can hinder performance. 

On the upside, there's diversity in both customer industry sector and geographical region. Skill shortages in its core industry segment of IT persist, while little company outsourcing of recruitment in many international markets offers room for longer-term growth. 

On balance, and with the valuation seen as undemanding and the consensus analyst estimate of fair value at over 140p per share, more speculative investors might want to watch this one. 

Positives: 

• Business sector and geographical diversity
• Attractive forecast dividend (not guaranteed)

Negatives:

• High economic outlook uncertainty
• Geopolitical tensions impacting Germany

The average rating of stock market analysts:

Buy