ii view: Hays hit by series of global events

Following a near-30% share price gain in 2019, it's been a difficult start to 2020.

Second-quarter trading update to 31 December 2019

• Total group net fees down 7% - Like-for-like down 4%
• Temporary job like-for-like net fees down 3%
• Permanent job like-for-like net fees down 6%

Chief executive Alistair Cox said:

"Growth slowed markedly in December, driven by specific events in key markets: general strikes in France, tragic Australian bushfires and the UK election. Each event impacted markets already facing challenging economic conditions and low business confidence. Germany weakened further, with economic uncertainties driving increased client cost controls. The Americas performed well, with the USA a standout, while Asia was flat. Conditions in the UK remained uncertain, particularly before the election, although the result may provide impetus over time.

"The rebound from these events and our New Year 'return to work' are thus particularly important, and we are closely monitoring activity levels. Overall, we expect near-term macro conditions to remain difficult, but see continued opportunities for growth in key specialisms like IT."

ii round-up:

Founded in 1968 as the Career Care Group, today recruitment specialist Hays employs over 11,000 people globally. With operations in 33 countries and over 260 offices, it fills over 1,300 jobs every working day. 

Hays (LSE:HAS) reported disappointing trading in this latest update, hit by a series of global events from strikes in France and the UK general election to bushfires in Australia. Group fees on a like-for-like basis fell by 4%, below analyst forecasts for a retreat of 3%.

Germany, the group’s biggest sole market accounting for 26% of net fees, suffered an ongoing fallout from challenges across its manufacturing and automotive sectors. Management also flagged concerns that weakness had spread to the financial services sector. Overall net fees fell by 9%.  

In the UK, private sector fees retreated by 8%, given political and electoral uncertainty, while in Australia and New Zealand a 7% fall was reported, overshadowed by declining business sentiment and the continuing bushfires. 

As a result, and combined with adverse currency movements, management now expects first-half operating profit of around £100 million, down from £124 million last year and below current analyst forecasts ranging between £105 million to £110 million. 

The share price fell by more than 3% in mid-morning UK trading. 

ii view:

The recruitment industry is geared to economic cycles and, as such, is highly cyclical in nature. According to JP Morgan, fears over a slowing global economy prompted 49 central banks around the world to cut rates 71 times in 2019. Global central bank policy has been hard at work attempting to foster employment growth and prevent rises in unemployment. 

For Hays, management continues to monitor and assess the cost base closely. Consultant headcount decreased by 1% in this second-quarter and by 2% year-on-year. Opportunities for growth and investment in key specialisms like information technology remain on the radar.

For investors, a forward dividend yield in the region of 5% and including the possibility of further special dividends (not guaranteed) offers attraction. A record of six consecutive years of dividend growth is also not to be overlooked. But with a forward price/earnings ratio of over 15 and in line with the three-year average, the shares are not obviously cheap. A wait and see approach may be most appropriate. 

Positives: 

• Cost cutting initiatives
• Geographical diversity

Negatives:

• Economically sensitive
• Special dividend payments previously made

The average rating of stock market analysts:

Hold