Dividend treat for Hays shareholders

There’s plenty to please investors in Hays’ (HAS) annual results. The recruiter’s final and special dividends are more generous than analysts expected, and the group has increased its share buyback scheme by a further £18.2mn, meaning it has £75mn to splash out in financial year 2023. Hays has also reported record levels of fees and consultant productivity, and operating profit growth of over 120 per cent. 

Recruiters are under close scrutiny at the moment, though. Investors are watching for the slightest movements in the job market, and for signs that companies are reining in their hiring plans as recession looms. Earlier this month, PageGroup (PAGE) noted a “slight slowing in time to hire in some of [its] markets” in July, saying it would “continue to closely monitor” its forward-looking KPIs. It was unclear, however, whether this was simply the result of a summer lull. 

Hays reported a good start to FY2023 with strong activity in permanent recruitment and stable overall volumes in temporary recruitment. There are some geographical discrepancies, however. In Germany, which generates over a quarter of group net fees, demand is still strong but in North America “permanent activity levels have decreased modestly, reflecting some reduced client confidence”.

Globally, both the temporary and permanent recruitment divisions are benefiting from improving margins, and the group looks well positioned from an industry perspective: 26 per cent of group fees came from the technology sector in 2022, which looks more resilient than most on the jobs front.

Yet at the risk of sounding like a broken record, the future of the labour market – both in the UK and further afield – is still very uncertain. Hays has increased its consultant headcount by 26 per cent year on year, with every region taking on a host of new employees. PageGroup and STEM recruiter SThree (STEM) have adopted a similar approach. If demand falters, the recruiters will be left with some painful staff costs.

From a value perspective, Hays is also a smidge more expensive than its listed peers, with a forward PE ratio of 11.9, compared with Pagegroup’s 10, Robert Walters’ (RWA) 8.9 and SThree’s 9.5. Hold.

Last IC View: Hold, 137p, 24 Feb 2022