Market snapshot: a tech rebound and big rally for Hays

Chey Tae-won, left, chair of SK Group, and Jensen Huang, right, CEO of Nvidia, in Seoul, South Korea, last month. Photo: Chris Jung/NurPhoto via Getty Images.

A return to form for the semiconductor sector boosted US markets and the Nasdaq in particular, with investor excitement further likely with the high-profile ADR debut for South Korean chipmaker SK Hynix due later today following a heavily oversubscribed $26.5 billion (£19.7 billion) raise.

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Rival Micron Technology Inc (NASDAQ:MU) rose 4.5% yesterday as it cited “surging demand for memory in the AI era” and gave a progress update on the New York construction of what it described as the largest semiconductor manufacturing site in US history. The broad VanEck Semiconductor ETF GBP (LSE:SMGB) added to the previous day’s gains with a further 2.5% rise, offsetting some of the momentum lost over recent weeks as investors have fretted over the level of AI spending, bloated valuations and the uncertain return on capital invested.

Sentiment was further supported by some more conciliatory remarks from the White House on the Iranian conflict, despite further tit-for-tat strikes, with President Donald Trump ruling out long-term military action and remarking on the fact that Iran had called to make a deal. The news sent the oil price lower as a result, easing inflationary pressure and bond yields, although an interest rate hike is still being priced in by markets following recent Federal Reserve comments, with AI spending seen as an upward pressure on prices in the economy more generally.

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Next week heralds the beginning of the second-quarter US reporting season in earnest, including but not limited to the major US banks, where more broadly expectations are elevated after a stellar showing in the first quarter. This provides the intriguing dual possibility of a further market melt-up should those expectations be met or comfortably exceeded, and a slump in the event of widespread disappointments either through missed earnings estimates or weaker outlook statements. In the meantime, the main indices continue their ascent, with gains in the year so far of 9.2%, 10.2% and 12.8% for the Dow Jones, S&P500 and Nasdaq respectively.

UK markets were initially buoyed by a frenzy of potential M&A action, with Vodafone Group (LSE:VOD) shares surging by almost 11% following the revelation that telecom industry investor Xavier Neal had taken a 16.2% stake, while describing the stake as a “long-term, strategic minority shareholding”, thus ruling out the likelihood of an all-out bid for the company.

Meanwhile, in the FTSE 250, the easyJet (LSE:EZJ) story ran hotter with emergence of a rival £5.7 billion bid at 715p per share from Apollo Management which trumps the previous 690p per share offer from Castlelake. The prospect of a bidding war lifted the shares higher by 13%, with investors now focused on a further potential knockout offer which could propel the firm’s share price ascent.

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More broadly, there was little else of corporate note as the premier index wavered around the flatline, maintaining its gain of 5.4% in the year to date. The more domestically focused FTSE 250 was more positive despite some disappointing economic updates on retail footfall numbers, new build developments and business confidence. The easyJet news helped perked the index, lifting it to a rise of 3.7% so far this year.

Hays Q4

The statement is a difficult read within a tough environment, with decision-making being delayed by tighter budgets and lower confidence levels both from companies and candidates on the economic outlook.

Indeed, a separate report released today showed that business expectations had fallen to their lowest levels since last February, as firms become increasingly reluctant to expand their workforce or capital investment in the current economic climate. For Hays (LSE:HAS), the numbers are a stark reiteration of this trend, with group net fees having fallen by 5% year-on-year, although marking an improvement from the 8% decline in the third quarter and a 10% drop in the second.

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Of itself, this improving trend is insufficient to mask the problems which are being faced. The group’s largest two geographies, Germany and the UK & Ireland which account for half of overall fees, fell by 7% and 8% respectively over the quarter. Hays has also taken a £40 million restructuring charge and a further £30 million impairment on right-of-use assets, previously cut the dividend leaving it at a pedestrian 1.2% and even after the recent price falls the shares are not obviously cheap on a historic valuation basis. In addition, the much-vaunted impact of the AI revolution on jobs remains on the radar as a slow-burner.

More positively, the group has or is planning to divest 13 of its country operations, leaving it to focus on the remaining 16 potentially higher performing business lines. Structural cost savings annualised at £50 million are ahead of target, the current net cash position of £20 million compares with a net debt reading of £15 million three months ago and the group expects to come in at the top end of the guided £37 million to £46 million operating profit for the full year. 

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This has proved enough to initiate a major relief rally, which adds to a share price increase of 17% over the last three months. Even so, on balance the price remains down by 45% over the last year, as compared to a 7% gain for the wider FTSE 250, such that the market consensus of the shares as a hold is unlikely to change until such time as any recovery becomes entrenched.

Lee Wild, Head of Editorial at ii, owns Hays shares.