Midas: Hays to cash in as world recovers
Hays is one of the leading recruitment companies in the world, employing more than 6,500 people in 28 countries. The group specialises in white-collar workers, ranging from accountants to IT support staff. Last year alone, it put 50,000 job seekers into permanent work and a further 270,000 into temporary posts.
The figures are noteworthy because recruitment is widely considered to be one of the most cyclical industries. When times are tough, companies tend to stop hiring and employees tend to stick with the jobs they have. This generally means tumbling fees and profits for recruitment firms, many of which have had a difficult time over the past two years.
Hays has not been immune from the downturn, but it has been relatively resilient for two main reasons. First, it operates in both the public and private sectors in Britain and second, it has branched out into markets around the world.
The company has been through a transformation over the past few years. In 2005, it focused mainly on Britain, deriving three-quarters of its revenue from this country. Now less than half of revenue and only about 20% of profits come from domestic recruitment, with the rest coming from overseas.
Much of this business comes from Asia and Latin America, including China, Hong Kong, Japan, Singapore, India and Brazil. And it has been actively encouraged by chief executive Alistair Cox, who joined in 2007, having headed computer company Xansa until it was sold to a European consultancy firm.
Specialised recruitment businesses simply do not exist in many parts of the world, with companies tending to find staff using in-house human resources teams. Hays can do the job faster and more effectively, and as companies pay a fee only if a new recruit is taken on, they tend to be happy to give the British business a try. Once they discover it works, they become enthusiastic converts.
Hays' financial year runs to June 30 and in 2009 pre-tax profits were £149m. Brokers are forecasting about £78m for the year just ended. While this is a significant decline, figures should start to recover strongly next year as the overseas business really begins to motor.
Some brokers worry about Hays' exposure to the British public sector and the company admits that there has been a significant downturn in this area since the General Election. But Hays makes only 8% of fees from Government offices and is confident that it can make up most of the shortfall in the private sector. In the meantime, emerging markets are expanding fast and Hays is well placed to benefit.
Midas verdict: Hays shares reached 180p in the summer of 2007. Since then, they have halved to 9.25p. At this level, they are a buy. The company is well managed and should grow substantially over the next two years. In the meantime, investors can take comfort in the importance that Cox attaches to the dividend. This has been held at 5.8p since 2008 and should be maintained again this year, putting the stock on a yield of nearly 6.5%.
Traded on: Main market
Ticker: HAS
Contact: 020 7383 2266 or haysplc.com
Ticker: NSR
Contact: 0845 850 1435 or nestor-healthcare.co.uk
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