• Log in
• Register free
• Subscribe
• Help
• Tour & Trial IC Advantage

Hays (HAS)

Created:

23 October 2008

Updated:

5 March 2009

Written by:

Algy Hall

BEAR POINTS:

■ Highly sensitive to worsening economic outlook

■ Falling income in the UK and Ireland

■ Signs of weakness in Asia Pacific

■ Temporary jobs market falling off

BULL POINTS:

■ Structural changes to Europe's jobs market

■ Cutting costs

News of a 10 per cent rise in first-quarter like-for-like revenues, or 4 per cent excluding the effects of new offices and favourable currency movements, hardly sounds like a problem. However, in the case of recruitment firm Hays, recent performance is overshadowed by the prospect of a severe recession. So, while Hays justifiably billed the performance as 'solid', there is much less that appears to be solid about the outlook for the group. With unemployment rising fast and a potentially severe recession in the UK and US perhaps spreading to Hays' international markets, the future is bleak. What's more, recruitment agents are especially sensitive to the economic downturn. All this means that, despite the heavy fall in Hays' share price, we think shareholders should still sell before conditions get even worse.

The dullest part of Hays' first-quarter update relates to its operations in the UK & Ireland, where it generated 58 per cent of its net fee income last year. Despite strong trading in public sector recruitment, overall sales were down 8 per cent. Key areas of weakness, unsurprisingly, were finance and accountancy, and construction and property. Of particular note for bears was the fact that temporary placements, which normally hold up well at the start of a downturn as employers look to take on staff with no strings attached, were down in construction and property. This could be a taste of things to come as the downturn takes hold. And, as economic forecasts get gloomier, areas of relative strength, such as the group's information technology business, will look more vulnerable.

Hays is shrinking its own headcount to try and offset the deterioration in trading, and shaved staff numbers by 5 per cent in the first quarter, following a 7 per cent reduction in the second half of the previous financial year.

Click here for a guide to the terms used in IC results tables.

Given the debunking of the view that developing regions of the world could de-couple from the US, it is the areas where Hays has been growing fastest that could prove a huge cause for concern. Growth in the Asia Pacific region - 22 per cent of net fee income last year - came in at an impressive 27 per cent in the first quarter, or 13 per cent after stripping out currency movements. However, there are already signs of weakness, with permanent placements slowing in the important Australian market. The group also benefited in the quarter from strong demand from the mining and resources industry. But, with the recent falls in commodity prices and reduced availability of finance for big capital projects, the resilience of this market is now in question.

The really stunning performance in the first quarter, though, came from the division that lumps together continental Europe and the rest of the world, which accounted for 20 per cent of net fee income last year. Here, Germany was the star performer, which helped produce divisional growth in fee income of 54 per cent, or 32 per cent after currency movements. Yet, a banking crisis is now in full swing in Europe, which hardly inspires confidence that such lofty performances can be repeated. There are, however, structural changes to Europe's jobs market, as well as growing awareness of the role that recruiters can play, that should help sustain activity on the continent.

More share tips and updates...

Check out our tip performance...

• Share Tips
  • Buys
  • Sells
  • Recommendation changes
  • Tip performance
• Trading
• Companies
• Markets and Sectors
• Columnists
• Stock Screens
• Funds Data
• Research Tools
• Investment guides
• Events
• Q and A

requires IC Advantage

---

Subscribe today

Celebrate our 150th anniversary with fantastic savings on a joint magazine and IC Advantage subscription.

Subscribe today and save £150