By Connor Campbell, Financial Analyst, Spreadex
Despite the big Brexit cloud hanging over the UK jobs market, recruitment and human resources services firm Hays (LON:HAYS) has had a pretty solid 2017 so far. By early May it was trading at a peak of £1.75, and though the stock has fallen from those levels since then, largely trading between £1.62 and £1.67, in recent weeks it has begun to edge higher. Hays PLC now sits at a current trading price of £1.72
The company’s half year report back in February captured the issues it has seen since the Brexit vote last year. For the 6 months to the end of 2016 Hays’ UK division saw a 10% fall in fees – they were down 15% in London – alongside a wince-worthy 29% plunge in operating profit, with the private sector (which accounts for 72% of net fees) suffering a ‘marked step-down in activity’ after the referendum. Overall, however, Hays fared far better. Like-for-like fees rose 3%, while pre-tax profit rose 17% to £96.2 million; it also increased its interim dividend by 5%, rising to 96p per share.
By April’s third quarter update, however, the situation in the UK had begun to improve. While like-for-like net fees were still down 4% in the UK, that’s a significant improvement on the region’s half year showing. It was also more than made up for by the 12% and 18% surges in comparable net fees in the Asia Pacific and Continental Europe & Rest of World divisions respectively, leading Hays to an all-time record quarterly net fee performance.
UK net fees remained at similar levels in July’s fourth quarter report, with the region’s like-for-likes falling 5% for the 3 months to the end of June. Once again Hays pointed to Brexit as the main issue in the UK, arguing that ‘there is no long-term investment in any of the sectors’ as businesses focus ‘on the next 18 months until we get some sort of clarity’. ‘Tough market conditions in the public sector’ contributed to a 17% fall in fees in that division, while the private sector showed ‘modest signs of improvement’. Elsewhere the company’s performance wasn’t quite as robust as in Q3, with fourth quarter comparable net fees rising 7% to the third quarter’s 10%.
In terms of next Thursday’s annual results, Hays expects operating profit to come in ahead of the forecast £209.5 million, which itself would be a near 16% increase on 2016’s £181 million. Investors will also pay close attention to the company’s guidance for its forthcoming financial year, specifically whether or not its UK division can finally return to growth.
Hays PLC has a consensus rating of ‘Hold’ with an average target price of £1.59.
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