ii view: is recruiter Hays a cyclical buying opportunity?

Second-quarter trading update to 31 December

• Total net fees down 10%
• German net fees down 14%
• UK net fees down 9%

Guidance:

• Expects first-half pre-exceptional operating profit of £20 million versus last year’s £25.5 million

Chief executive Dirk Hahn said:

“We are delivering on our strategy to focus on long-term growth markets and are resolutely driving operational rigour through business line prioritisation, resource allocation, and efficiency initiatives. 

“With our continued actions to reposition the business, I remain confident that we will benefit materially when markets recover.”

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ii round-up:

Hays (LSE:HAS) is a UK and overseas recruitment company. 

The FTSE 250 constituent employs around 9,100 staff in 203 offices across 30 countries. 

For a round-up of this latest trading update announced on 14 January, please click here. 

ii view:

Started over a century ago, Hays today fills more than 1,000 jobs per day. Recruiting for 21 specialisms, technology related jobs generate most fees at 25% of the total. That’s followed by accountancy & finance at 15%, engineering 11%, construction & property 11%, and other areas the balance of 38%. Temporary placements made most fees at 62%, with permanent hires the balance of 38%. 

Geographically, Germany accounted for most sales over its last financial year at 27%. That was followed by the UK & Ireland at 23%, Australia and New Zealand 17%, and the combined others and including the US at 33%. Group competitors include PageGroup (LSE:PAGE) and Robert Walters (LSE:RWA).

For investors, tough economic conditions, particularly in Germany, continue to affect confidence among corporate clients and job seekers alike, particularly for permanent positions, and the fees associated with them. The threat of AI and its potential replacement of jobs across sectors such as a technology cannot be ignored. A previous cut to the dividend payment now leaves the shares on a forecast dividend yield of around 1% compared to 4%-plus previously, while a forecast price/earnings (PE) ratio above the three- and 10-year averages may suggest the shares are not obviously cheap.

On the upside, initiatives to generate cost savings of £45 million per annum by the end  
of the group’s 2029 full year continue to be pursued. A diversity of client industries and geographical locations exist. Group net cash of £40 million was held as of late December, while the company's own investment in AI could eventually help improve productivity and profits.   

On balance, and while exposure to an eventual economic recovery offers interest, more cautious investors are likely to await evidence of an upturn in core regions like Germany.

Positives: 

• Business sector and geographical diversity
• Focus on improving efficiency

Negatives:

• Economic outlook uncertainty
• Currency moves can impact

The average rating of stock market analysts:

Strong hold

ii's head of Editorial Lee Wild owns Hays shares