ii view: recruiter Hays steady as it navigates tough markets

First-quarter trading update to 30 September

• Total like-for-like net fees down 7% 
• Germany fees up 7% - UK & Ireland fees down 11% 
• Australia & New Zealand fees down 17% - Rest of the World fees down 11%
• Net cash of £75 million, down from £136 million at the end of June

Chief executive Dirk Hahn said:

"I am deeply proud to have been appointed Chief Executive and I look forward to driving our business forward, with the help of our highly experienced management teams worldwide.

“Our key markets remain characterised by skill shortages and continue to be positively impacted by wage inflation. We have a strong balance sheet and flexible business model and are well-positioned to adapt to near-term market conditions, while continuing to target structural growth opportunities and deliver shareholder value."

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ii round-up:

Global employment agency Hays (LSE:HAS) today detailed first-quarter trading in line with City expectations as more challenging economic conditions across its markets impacted business. 

Overall fees on a like-for-like basis fell 7% in the period to the end of September, with a 15% fall in permanent hire fees partly countered by a robust flat fee performance for temporary hires. 

Shares in the FTSE 250 company remained little changed in early UK trading having come into this latest news down by just over a tenth year-to-date. That’s similar to rival PageGroup (LSE:PAGE) and only just below a 6% fall for the FTSE 250 index. 

Hays recruits across 20 specialisms, with information technology its biggest at around a quarter of total fees, followed by accountancy and finance at around 14% and then construction and property at just over a tenth.

A 7% gain in fees at its core German market, accounting for almost a third of total group income, helped counter double-digit falls across the UK & Ireland, Australia & New Zealand and for its Rest of the World business. 

Consultant headcount fell 2% during the quarter and is down 9% year-over-year as management reduced costs given the lower demand environment. 

Broker UBS reiterated its ‘buy’ rating on the shares post the update highlighting what it believes is an attractive valuation.  

A second-quarter trading update is scheduled for 18 January.  

ii view:

Hays is a UK and overseas recruitment company. It employs around 13,000 staff in 251 offices across 33 countries. Founded over a century ago and headquartered in London, Germany generated its biggest slug of operating profit over its last financial year at 51%, followed by Australia and New Zealand at 16%, the UK & Ireland at 15%, and the Rest of the World the balance of 18%.  

For investors, the challenging economic backdrop is likely affecting confidence among corporate customers when making permanent hires. Costs generally for businesses remain elevated, currency movements such as those for its Australia & New Zealand business can hinder, while fees are expected to again fall during the current second quarter. 

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More favourably, diversity in both customer industry sector and geographical region are present, and skill shortages across its industry segments such as IT persist. Group net cash is held, there's little company outsourcing of recruitment in many international markets which offers room for longer-term growth, while a forecast dividend yield of over 5% is not to be ignored. 

For now, and while clear downside risks persist, especially in the short term, a consensus analyst estimate of fair value at over 130p per share implies room for upside when market conditions improve. 

Positives: 

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

Negatives:

• Economic outlook uncertainty
• Currency moves can hinder

The average rating of stock market analysts:

Buy