Hays still perilously close to 10-year low after Q4 results

PageGroup (LSE:PAGE) bore the brunt of investor disappointment with its update earlier this week, so this moribund performance from Hays (LSE:HAS) comes as little surprise.

The job hiring market globally remains on the back foot, despite generally low levels of unemployment. Recruitment companies such as Hays are being affected by the double whammy of low company confidence to hire new workers, coupled with candidate caution about accepting job offers given the difficult economic backdrop.

• Invest with ii: What is a Managed ISA? | Open a Managed ISA | Transfer an ISA

While there are some additional country specific reasons, the decline is being felt across not only its end markets but also within its main specialisms, such as Technology and Accountancy & Finance.

Net fees therefore declined by 17%, underneath which there were falls of 4% and 22% in temporary and permanent revenues. Germany is the group’s largest individual market, accounting for 31% of overall fees, and a drop of 17% resulted largely from client companies’ cost controls, which particularly impacted on hiring across the Technology and Engineering specialisms.

The UK and Ireland (23% of net fees) saw a decline of 17%, most latterly impacted by the uncertainty leading up to the election, while France declined by 13% for similar reasons.

In addition, the strength of sterling, especially against the Australian dollar and the euro, further weakened revenues on repatriation. Hays expects adjusted pre-tax profit for the full year to come in at around £105 million, marginally outside of the market range of between £106 million to £113 million.

• Sign up to our free newsletter for share, fund and trust ideas, and the latest news and analysis
• Stockwatch: four stocks to back a UK building boom
• Best UK stocks, sectors and markets in first half of 2024

Accompanying guidance comments do little to lift the mood, with the group stating that low levels of confidence will mean that the near-term outlook will remain challenging and that Hays expects a “subdued summer” in the UK.

There are also, however, some glimmers of light which could yet work to the group’s benefit over the longer term. Hays has made cost savings of around £60 million this year, as it tightens its financial belt given the backdrop. An uptick in underlying cash generation in this final quarter leaves the group with net cash of £55 million on the balance sheet, from a previous net debt position of £20 million at the end of March.

This relative stability has enabled the payment of dividends which, including specials, equate to a yield of 5.8% in a clear attraction to investors. From an operational perspective, bad debts remain in line with the first half of the year and at historically low levels, such that the current challenges are clearly containable. The group has also seen some more stability in the likes of Australia and New Zealand, Asia and the Americas, which could provide some underlying support as the year plays out.

Hays is in the midst of a parlous time for its sector, and this update provides little obvious evidence of a turn in the economic cycle. Costs generally for businesses including wages remain elevated, and inflation and interest rate levels have yet to hit the target in most markets. Even so, the group remains diversified in terms of the specialisms it offers and on a wide geographical basis, thus placing in it a position to benefit from any upticks as and when they occur. 

• US results season preview: catching up with the Magnificent 7
• What Labour’s landslide means for investors

The question which is perplexing investors is when and where these improvements might come from. The share price has been weak on that basis, having fallen by 9% over the last year, as compared to a gain of 15% for the wider FTSE 250 index. Nor is the performance a recent phenomenon, with the price having dropped by 46% over the last three years. The shares currently trade not far of lows last seen in summer 2013.

By the same token, there is an increasing swell of investors who believe that the worst is over and who are prepared to take a leap of faith. As such, the market consensus of the shares as a 'buy' is a reflection of some confidence in the company’s longer-term recovery prospects.