Interactive Investor

ii view: recruiter Hays enjoys a record March

14th April 2022 11:37

Keith Bowman from interactive investor

Exposure to IT hiring and sat on an estimated future dividend yield of over 6%. We assess prospects. 

Third-quarter trading update to 31 March

  • Like-for-like net fees up 32% year-on-year
  • Net cash up 1.3% from Q2 to £240 million

Guidance:

  • Continues to expect a full-year operating profit of £210 million to 215 million, excluding a one-off Russia cost

Chief executive Alistair Cox said:

"While we are mindful of increased macroeconomic and geopolitical uncertainties, client and candidate confidence remains strong, with continued skill shortages and rising wage inflation globally. 

“Our Strategic Growth Initiatives in structural growth areas like Technology, Life Sciences and large enterprise clients continue to perform strongly and I am confident we will take further market share.”

ii round-up:

UK and overseas recruiter Hays (LSE:HAS) today reported net quarterly fees slightly ahead of City expectations, although flagged a £5 million cost provision for the previously announced closure of its Moscow and St Petersburg offices. 

Third-quarter like-for-like fee growth of 32% included 19 country records and a record fee month in March. Hays, whose single biggest market is Germany, reiterated its recently upgraded estimate for full-year operating profit to come in at between £210 million to £215 million, but now excludes its one-off cost for Russia. That’s up from £95 million over its last financial year to the end of June.

Hays shares fell by more than 2% in early UK trading having already fallen by close to a fifth year-to-date. Shares for rival SThree (LSE:STEM) are down by a similar amount, while PageGroup (LSE:PAGE) has fallen by more than a quarter. The FTSE 250 index is down by more than 10% during 2022. 

Hays, which specialises in recruiting for industries including Information Technology (IT) and accountancy, pointed to growth across all its geographical regions during the period.

Temporary hiring volume growth was summarised as ‘good overall’ and ‘strong’ in Germany. Permanent hiring activity levels had remained strong throughout the quarter. 

In the first half to the end of December, Russia generated £5.9 million of group net fees, or 1% of the total, and £0.8 million of operating profit.  

Broker UBS reiterated its buy stance following the update, with an estimated fair price target of 220p per share. 

Hay’s fourth-quarter trading update is scheduled for 14 July. 

ii view:

Hays is a UK and overseas recruitment company. It employs around 12,000 staff in 255 offices across 33 countries. It recruits across 20 specialisms with IT its biggest at around a quarter of fees, followed by accountancy and finance and then construction and property. Its overseas business now accounts for almost 80% of income, up from around a quarter in 2005. 

For investors, a backdrop of rising interest rates, elevated geopolitical tensions and a broadly more uncertain economic outlook all offer potential downward pressure on its customer’s confidence to hire. Rising costs for industry generally should not be forgotten, while pandemic disruption in certain parts of the world such as China remains ongoing.    

That said, skill shortages in its core industry segment of IT persist, diversity of both customer industry sector and geographical region have been established, while little company outsourcing of recruitment persists in many international markets, offering room for growth. A forecast future dividend yield of over 6% also remains highly attractive. For now, and with demand for skilled labour likely to persist, Hays looks to remain well positioned to take long term advantage. 

Positives: 

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

Negatives:

  • Economic clouded outlook
  • Currency movements can hinder performance

The average rating of stock market analysts:

Buy

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