With the UK's economy mired in recession, the eurozone not clear of crisis and growth in Asia slowing, this is no time to be looking for work. In the UK alone the unemployment rate stands at around 8 per cent compared with little more than 5 per cent before the financial crisis. Such a backdrop is bad news for recruitment agencies - and Hays (HAS) appears to be suffering more than most.
- Resilient performance in Germany
- New debt facility offers comfort
- Fee income falling
- Trading could deteriorate further
- Dividend has been cut
- Hefty debt pile
Trading in the first quarter of 2012-13 looked bleak. Net fee income fell 4 per cent year on year, with especially weak performances in Asia Pacific and the UK, where fees slumped 8 per cent and 9 per cent respectively. Fee income dropped 11 per cent for permanent placements, which generated 44 per cent of the group's fees in 2011-12. True, fee income rose 2 per cent from temporary placements, but this business could soon struggle. "Corporate customers are focused more on cost control and this means that they may be looking to get more from the temps that they have hired and therefore may need fewer of them," reckon sector analysts at broker JPMorgan Cazenove.
Bizarrely, the only sign of resilience was in Europe where the German business grew fee income by 25 per cent. Germany generates 20 per cent the group's fees and has been benefiting from demand in such areas as engineering, life sciences and finance. Whether that remains sustainable as eurozone-related fallout hits, however, is questionable. Earlier this month, for example, the German government cut its estimate for economic growth in 2012 from 1.6 per cent to 1 per cent, a far cry from the 4.2 per cent growth rate achieved in 2010. Hays could suffer more pain in its Asia-Pacific operation, too, with broker Numis Securities pointing to the potential impact of a slowing Australian resources market as a factor to consider.
HAYS (HAS) | ||||
|---|---|---|---|---|
| ORD PRICE: | 81p | MARKET VALUE: | £1.13bn | |
| TOUCH: | 81-81.2p | 12-MONTH HIGH: | 93.5p | LOW: 59p |
| DIVIDEND YIELD: | 3.1% | PE RATIO: | 16 | |
| NET ASSET VALUE: | 13p | NET DEBT: | 70% | |
| Year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 671 | 151 | 7.72 | 5.8 |
| 2010 | 558 | 30 | 0.48 | 5.8 |
| 2011 | 672 | 111 | 5.19 | 5.8 |
| 2012 | 734 | 122 | 5.47 | 2.5 |
| 2013* | 707 | 115 | 4.98 | 2.5 |
| % change | -4 | -6 | -9 | nil |
Normal market size: 30,000 Matched bargain trading Beta: 1.6 *JPMorgan Cazenove estimates | ||||
Hays isn't alone in its suffering. Michael Page, for instance, saw its third-quarter fee income drop 11.3 per cent year on year, with UK fees down 10.9 per cent. Yet some of Hays' rivals seem to be coping quite well. SThree, for example, grew its third-quarter income by 6 per cent year on year and Robert Walters saw its third-quarter fees grow 3 per cent on the same period last year.
Those three rivals can also point to comforting cash piles - £50m at Michael Page, £6m at Robert Walters and £17m at SThree. Not so at Hays, which has net debt of £140m, which meant £5.7m of interest charges in 2011-12. That said, Hays has just completed a refinancing, involving the provision of a £300m five-year facility.
Investors will also be unimpressed that last year management hacked back the year's total dividend by 53 per cent. The payout is forecast by JPMorgan Cazenove to remain flat in 2012-13 at 2.5p, meaning a prospective dividend yield of about 3 per cent; not dreadful, but not as good as, say, the 4.6 per cent yield on SThrees's shares.
