ii view: Hays finding it tough in Germany

Third-quarter trading update to 31 March

• Overall, like-for-like (LFL) net fees down 14% 
• German LFL fees down 13% 
• Australia & New Zealand LFL fees down 23% 
• UK & Irish LFL fees down 16%
• Net debt of £20 million, down from net cash of £67 million in late December

Chief executive Dirk Hahn said:

"Market conditions remained challenging through the quarter. While economic uncertainties remain, we have a strong and clear strategy and will continue to build a more resilient business through greater focus, increased operational rigour and strong cost management.”

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ii round-up:

Global employment agency Hays (LSE:HAS) today detailed a deterioration in quarterly sales, missing City forecasts as the job hiring market remained challenging.

Third-quarter like-for-like net fees to the end of March fell 14% year-over-year, worse than the 10% decline in the second quarter and below analyst estimates for 12% drop. The performance followed a 13% retreat in Germany, its biggest profit generator, versus a flat fee position in Q2. 

Shares in the FTSE 250 recruiter fell 4% in UK trading having come into this latest news down 15% year-to-date. That’s similar to smaller rival Robert Walters (LSE:RWA) and ahead of a 10% decline for peer PageGroup (LSE:PAGE). The FTSE 250 index itself is down by 0.5% in 2024. 

Hays recruits across 21 specialisms, with information technology its biggest at around a quarter of total fees, followed by accountancy and finance at 15%, engineering at 12% and construction & property 10%. 

Temporary staff hires, accounting for the around three-fifths of group revenue, deteriorated to a fall of 12% during the period, down from a dip of 5% in Q2, with management flagging lower-than-normal average hours worked per assignment in Germany. 

Permanent staff hires, which make up the balance, fell 18% year-over-year, only marginally worse than the 17% fall seen in Q2, although the time needed to hire has lengthened further given weak client and candidate confidence. 

Consultant headcount fell 6% during the quarter to give a 16% reduction year-to-date, leaving Hays comfortably on target to achieve its goal of annualised cost savings of £50 million by the financial year-end.

Group net debt of £20 million compared to a net cash position of £67 million as of late December. A fourth-quarter trading update is scheduled for 11 July. 

Broker UBS reiterated its ‘buy’ rating on the shares post the update, highlighting what it believes is an attractive valuation.  

ii view:

Hays is a UK and overseas recruitment company employing just over 11,600 staff in 248 offices across 33 countries. Founded over a century ago and headquartered in London, Germany generated its biggest slug of operating profit over its last financial year at 51%, followed by Australia and New Zealand at 16%, the UK & Ireland at 15%, and the Rest of the World the balance of 18%.  

For investors, the tough economic backdrop continues to hinder both corporate client and job seeking candidate confidence. Costs generally for businesses and including wages remain elevated. Currency movements such as those at its Australia & New Zealand business can impact performance, while forecast dividend cover of 1.4 times sits below the three-year average of three times.   

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More favourably, diversity in both customer industry sector and geographical region exist and skill shortages across its industry segments such as IT remain. Low company outsourcing of recruitment in many international markets offers room for longer-term growth, while a forecast dividend yield of around 4% is not to be forgotten.  

For now, and with doubt over expected interest rate cuts increasing, patience looks likely to remain the order of the day. That said, a consensus analyst estimate of fair value above 120p per share suggests room for potential reward once an economic recovery is established. 

Positives: 

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

Negatives:

• Economic outlook uncertainty
• Relatively new chief executive

The average rating of stock market analysts:

Buy