ii view: Hays is running hard to stand still

Easing lockdowns have helped this recruiter, but will it go backwards under new restrictions? 

First-quarter update to 30 September

• Fees down 29%
• Net cash of £350 million

Guidance:

• Expects first half to be modestly profitable

Chief executive Alistair Cox said:

"The pandemic continues to significantly impact our markets, although encouragingly our Temp business remains stable and we have seen improvements in Perm, particularly in markets that had previously been hardest-hit by lockdowns.   

"Although many uncertainties remain, our business is resilient and our highly experienced management teams are focused on best positioning us for recovery. With our strong balance sheet and leading positions in key sectors, we are confident we can take further market share."

ii round-up:

UK and overseas job agency Hays (LSE:HAS) has outlined expectations for a modest first-half profit compared to a previous breakeven position as recruitment freezes under the pandemic continued to bite. 

Fee income in its first quarter fell by 29%, an improvement on the fall of 34% suffered in the previous quarter, aided by marginal recoveries in the UK and Australia and New Zealand as lockdown restrictions eased. 

Against a backdrop of increasing new Covid-19 restrictions in both the UK and France, Hays shares were down over 1% in London trading. For the year to date, Hays shares are down over a third. Shares for rival recruiters PageGroup (LSE:PAGE), Robert Walters (LSE:RWA) and SThree (LSE:STEM) are all down by at least a fifth in 2020. 

Temporary staff markets were summarised as ‘stable’ overall, with fees down 25%. The permanent hiring market remained tough. Fees fell by 35%. 

Net fees for its biggest market Germany, accounting for just over a quarter of group fees, retreated by 31%. Clients are closely monitoring costs, particularly in the automotive and manufacturing sectors. 

In the UK, which generates around a fifth of overall fees, a decline of 41% in the North outpaced a 34% fee retreat in its largest region London.  

In early April, Hays raised nearly £200 million via an institutional share sale to both strengthen the balance sheet and potentially invest in opportunities to seize market share from rivals. 

Under measures to conserve costs, no dividend was paid in its last full financial year to the end of June. At the end of September, it was sitting on net cash of £350 million. 

ii view:

Employing over 10,000 staff in 266 offices and across 33 countries, Hays cut its own consultant numbers by 3% in the quarter, making for a 15% cut year-over-year. Their expertise stretches across 20 professional and skilled recruitment specialisms. The three largest sectors are information technology, generating a quarter of group fees, accountancy & finance at 15% of fees and construction & property at 12%.

Temporary and permanent fees are split in a rough 60% to 40% divide. Its overseas business now accounts for around three-quarters 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, swift action to bolster the group’s finances, in what will clearly be a tough period of virus impacted trading, is favourable. Navigation of the 2008 financial crisis has left the board highly experienced in dealing with economic downturns. But a record of six consecutive years of dividend growth is over, while the timing of any economic rebound from Covid-19 is uncertain. In all, and with institutional appetite for the shares potentially satisfied by the April fundraising, existing investors are likely to require patience. 

Positives: 

• Business sector and geographical diversity
• Strengthened finances

Negatives:

• Covid clouded outlook
• Dividend payment suspended

The average rating of stock market analysts:

Strong hold