ii view: Hays flags sharpest recovery in 53 years

Fees have recovered strongly, but parts of its business are back in lockdown. Buy, sell, or hold?

Full-year results to 30 June 2021

• Fees down 8% to £918 million
• Operating profit down 30% to £95 million
• Final dividend of 1.22p per share (FY 2020: nil)
• Special dividend of 8.93p per share (FY 2020: nil)

Chief executive Alistair Cox said:

“As business and candidate confidence increased globally, our management actions drove record consultant productivity, leading to a strong recovery in fees and profits. Across all our regions there are clear signs of skill shortages and wage inflation in certain industries, particularly Technology and Life Sciences.

“Overall, the strength of the recovery has been dramatic. We now see a clear route back to, and then exceeding, pre-pandemic levels of profit, faster than we envisaged even six months ago.”

ii round-up:

UK and overseas recruiter Hays (LSE:HAS) today pointed towards the sharpest recovery in trading in its 53-year history following the depths of the global pandemic in mid-2020. 

Quarterly fees had moved from down 29% in Q1 to up 39% over the final three months to the end of June, with June its strongest trading month since the start of the Covid crisis. Given the ongoing recovery, and as previously flagged, a restarting of the dividend sees an ordinary payment of 1.22p per share declared. Surplus cash will be returned via an 8.93p per share special dividend. 

Hays shares rose by more than 1% in UK trading, adding to their gain of 47% since late October, just prior to the announcement of vaccination success. Shares for rivals PageGroup (LSE:PAGE), SThree (LSE:STEM) and Robert Walters (LSE:RWA) have all made significant double-digit gains during that period. 

Full-year operating profit for Hays fell by just under a third to £95 million compared to the pre-pandemic 2019. 

Accompanying management outlook comments pointed to a good start to the new 2022 financial year, with strong activity levels seen across all its main markets. Record June contractor volumes were reported at its biggest single national market in terms of fees, Germany. For its ‘Rest of the World’ business, conditions in the Americas were summarised as ‘strong’, led by the USA.

But some caution was warranted given recent pandemic lockdowns in Australia. New Zealand and Australia accounted for under a fifth of overall fees but just over two-fifths of operating profit during the financial year just gone. 

A first-quarter trading update for the three months to the 30 September is due on 14 October. 

ii view:

Hays employs over 10,500 staff in 256 offices across 33 countries. It recruits across 20 specialisms, with IT its biggest at quarter of fees, then accountancy and finance generating 14% of fees; followed by construction and property (12%).

Temporary and permanent fees are split in a rough 60% to 40% divide. Its overseas business now accounts for almost 80% of income, up from around a quarter in 2005. The recruitment industry is geared to economic cycles and as such is highly cyclical in nature.  

For investors, pandemic uncertainty and further lockdowns for its Australia and New Zealand business should not be overlooked. An estimated forward price/earnings (PE) ratio comfortably above the three- and 10-year averages suggests the shares are not obviously cheap, while currency movements can work against it. 

That said, a sizeable trading recovery has been seen, with today’s dividend payments leaving it on a yield of around 6%. Navigation of the 2008 financial crisis has also left management highly experienced in dealing with economic downturns. In all, while some caution remains sensible, exposure to likely ongoing economic recovery should leave its well positioned for the long term.  

Positives: 

• Business sector and geographical diversity
• Recommenced dividend payments

Negatives:

• Covid clouded outlook
• Currency movements can hinder performance

The average rating of stock market analysts:

Buy