ii view: Hays raising £200 million in Covid-19 fallout

Recruitment markets are unlike anything seen in modern times, so Hays prepares to battle Covid-19. 

Covid-19 trading update and £200 million fundraising

• Full-year profit expected to be materially below current forecasts
• Cancelling the interim dividend payment

Chief executive Alistair Cox said:

"The past few weeks have been unlike anything the world has seen in modern times and has severely impacted recruitment markets globally. These are hugely challenging times and I would like to thank sincerely all our colleagues at Hays for their support and commitment. Governments across the world also deserve major credit for the scale and speed of their response to support individuals and businesses through the Covid-19 pandemic.

"Today's equity fundraise is designed to further reinforce our business so that we are strongly placed to build on our market leading positions globally by supporting our clients and capturing additional market share."

ii round-up:

UK and overseas job agency Hays (LSE:HAS) today launched an immediate £200 million institutional fund raising as it looked to bolster its finances amidst the Covid-19 fallout. 

Having already battled a manufacturing slowdown in its biggest market Germany, French strikes and Australian bushfires, it now expects the virus pandemic to initially cut client net fees by 70%, with a 35% overall fall estimated come December. 

The global financial crisis saw fees drop by 40% from peak to trough over a nine-month period.

Hays shares registered a double-digit percentage decline in early UK market trading to hit prices not seen since 2013. That contrasted with an upswing in global stock markets. Hays, which normally fills around 1,300 jobs every working day, has seen its shares retreat by more than 40% year-to-date. 

Operating profit for the year ending in June is now expected to be materially below the £190 million consensus analyst estimate. 

A 1.11p per share dividend payment announced alongside the February interim results will now be cancelled, saving £16.3 million. 

Cost cutting, potential tax deferral options via various governments and even access to the Bank of England's Covid Corporate Financing Facility (CCFF) are now being pursued and investigated. 

The newly raised funds will add to its £35 million net cash position as of 27 March, boosting its liquidity buffer and offering it opportunity to pursue growth opportunities with both new and existing blue-chip clients.

ii view:

Hays looks to be the undisputed global leader in white collar specialist recruitment. Its business model is based on having unrivalled scale and breadth across geographies, sectors and recruitment contract types. Temporary and permanent fees are split in a rough 60% to 40% divide, with private and public sector fees divided roughly 80% to 20%. The recruitment industry is geared to economic cycles and as such highly cyclical in nature.  

For investors, swift action to bolster the group’s finances in what will clearly be a tough period of virus impacted trading, is sensible. Navigation of the 2008 financial crisis has left the board highly experienced in dealing with economic downturns. But a record of six consecutive years of dividend growth is also now gone, while the timing of any economic rebound from Covid-19 remains highly uncertain. For now, and with any near-term institutional appetite for the shares filled by the fundraising, investors may wish to take a wait and see approach. 

Positives: 

• Business sector and geographical diversity
• Cost cutting initiatives

Negatives:

• Dividend payment cancelled
• Biggest German market hit hard by manufacturing & automotive downturn

The average rating of stock market analysts:

Hold