Hays brings back dividend after job market recovery

Recruiters are usually a good indicator of wider economic health. When companies are confident about growth, they hire, and when they are uncertain, they don’t. Hays' (HAS) end of year results therefore look almost exactly as we would expect. Its revenue was down 8 per cent for the full year but momentum was building through each quarter with H2 revenue up 13 per cent and Q4 up 39 per cent.

Cash conversion was 138 per cent thanks to record low debtor days of 33, down from 36 last year. This helped leave the recruiter with cash of £410.6m at the end of the period and it has resumed its core dividend at 1.22p per share and has proposed the payment of a 8.93p special dividend in November 2021.

Future costs savings should help Hays generate the cash necessary to pay these dividends. During the year like-for-like costs dropped 4 per cent, helped by the reduction in travel and entertainment costs caused by the pandemic restrictions. Management expects these costs to “increase modestly” as normal business resumes but a reduction in its property footprint, aided by a shift to hybrid working, means it expects permanent cost reduction of around £20m.

Brokers are confident it will race back to pre-pandemic profitability in the next two years. The FactSet consensus is that operating profit will increase to £178m at the end of 2022 and to £221m by the end of 2023.

A beneficial aspect of Hays is that it gets a net margin benefit from wage inflation given that its fees are calculated as a percentage of the salaries of the people it places. It says it has seen a pick-up in wages in both life sciences and technology. This is particularly pleasing as technology is its largest sector, making up 26 per cent of its net fees  

One hurdle that may trip up Hays’ recovery is the spread of the delta variant in largely unvaccinated Australia and New Zealand (ANZ). Last year this was its most profitable region, generating £39.7m of operating profit compared with Germany (£31.4m), UK & Ireland (£11.5m) and Rest of the World (£12.5m). Persistent lockdowns in ANZ could lower business confidence in the medium term.

Hays is well placed but it is currently trading at a forward earnings of 22.4, so is a little more expensive than its peers. We have to wait a little longer to see the direction of the recovery. Hold.