Monday 19 February 2018

Recruiter is set to make Hay far away from Brexit

Share watch with John Lynch

European Union Agriculture Commissioner Phil Hogan. Photo: Reuters/Francois
European Union Agriculture Commissioner Phil Hogan. Photo: Reuters/Francois

John Lynch

There were lots of reasons why the British did as they did in June and voted to leave the EU. Disapproving commentators on this side of the Irish Sea have blamed a British delusion of global importance, when, even after 40-odd years in Europe, the UK still can't see itself on a par with nations like the French or the Germans.

But whether we like it or not, Brexit needs managing. As Commissioner Phil Hogan said recently, it offers a headache for the EU, a full-blown crisis for the UK and high risk of collateral damage for Ireland.

One thing is certain, however, it is going to throw up winners and losers, and one victor could be the recruiting company Hays plc. Though fundamentally British, Hays has weaned itself off heavy dependence on the British market and even if the recruitment game in the UK goes through the horrors, the Hays book is widely spread so as not to damage the bottom line.

Hays is an asset light FTSE 250 company, focused on providing specialist recruitment and human resource services for clients and candidates.

It provides permanent and temporary employment for professional and technical staff. It operates in 33 countries, including Ireland, with 250 offices, concentrating on 20 specialist sectors. Last year, Hays received an enormous 10 million CVs; placed 67,000 in permanent jobs and 220,000 in temporary assignments. All in all it has 9,000 employees and is valued at £2bn (€2.24bn).

Like many large international corporations, Hays has been through many guises in its long existence. In the 19th century, it was a wharf and warehouse operation called Hays Wharf. Over time it developed a significant property business, which became attractive enough for the fabulously wealthy Kuwait Investment Office to buy out the company on the strength of its property portfolio.

In 1987, Hays purchased a recruitment business called Career Care and within a few years it offloaded all of the other businesses to focus on recruitment. Now its big focus is on hiring staff for the IT sector as well as for accounting, finance and construction. Hays is also well diversified geographically. While 10 years ago the UK accounted for 80pc of its business, today it is less than one-third. The remaining two-thirds from Europe, USA and Asia-Pacific.

Last year, the group saw strong growth in Europe with double-digit growth in Germany, France, Spain and the USA. This softened the slowdown in the UK and Asia-Pacific.

Turnover for 2016 is £4.3bn, the highest in the last five years. Global net fees rose 7pc to £810m and operating profits were £180m and are projected to be £250m by 2018. Pre-tax profits were also up to £173m.

Investors should be pleased that the company has paid down all its debt and are now hoping for a special dividend.

After the Brexit referendum, Hays shares fell by almost one-third to 90pence; since then they have bounced back to £1.38, but are still off its yearly high of £1.50. The company trades at 15 times historic earnings and dividends are well covered.

Analysts have been looking carefully at Hays because of all the political fuss and commotion and have concluded that profit margins next year at recruitment companies might decline as the employment sector moves into a cyclical downturn.

However, the Hays exposure across many countries and many sectors could offer some resistance to the cyclical trend. The company also has low capital requirements; it is highly cash generative and expects a positive cash balance next year.

Meanwhile, the dividend is safe and it expects full-year profits to beat expectations.

Finally, if Brexit is bad news, it will be felt mainly in the UK and Ireland and Hays earnings would seem to be well cushioned. Few like Brexit and the secret is to have an earnings base that's as far away from it as possible. Hays shares are worth considering; but we are in uncertain times.

Nothing in this section should be taken as a recommendation, either explicit or implicit, to buy any of the shares mentioned

Irish Independent

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