Questor: in unpromising times to be a recruiter Hays is doing all it can to adapt. Hold

Questor share tip: it’s a highly cyclical business but this agency is well represented in the more ‘lockdown-proof’ sectors

Richard Evans 14 February 2021 • 5:00am

Woman working from home — Hays operates in fields such as IT and the digital economy, which have proved more resilient in the pandemic because staff tend to be able to work from home Credit: Morsa Images

In an economic crisis, companies tend to think more about letting go of existing employees than recruiting new ones. So it’s not exactly an ideal time to be a recruitment agency.

Hays has shared in the pain. Profits before tax were £86.3m in the year to June 2020, a severe fall from £231m the previous year. In a second-quarter trading update last month, it reported a 19pc fall in net fees. Despite this, the share price is back to where it spent much of 2019. Can this make sense?

Two things will determine Hays’ prospects: one is under its own control and the other is not. The latter is simply the economic landscape – and no one can feel much certainty about how that will look. Recruiters are notoriously cyclical so the shape of the recovery matters hugely to them.

Questor’s economic crystal ball is no better than anyone else’s so we will simply point out the sheer scale of the uncertainty. On the one hand, the pandemic, especially if vaccine-resistant mutations give the virus the upper hand, could at the pessimistic extremes push the world into a Thirties-style depression in which unemployment becomes entrenched.

On the other hand, stimulus from governments and central banks, coupled with a successful vaccination campaign and perhaps the advent of entire new industries and employment opportunities in the cause of turning the planet carbon-neutral, could instead make the next decade more like the “roaring Twenties” than the dismal Thirties.

Not much Hays could do to influence any of that. But this does not make the firm, which is due to publish its interim results on Thursday, powerless. In fact, it has several advantages that should help it navigate whatever future we face.

First of all, it is a white-collar recruiter, the world’s largest. That straight away means that it operates in sectors that on the whole have proved more resilient in the pandemic because working from home tends to be easier.

Hays is especially strong in the IT and digital economy sector, which accounts for a quarter of its net fee income. Accountancy and finance are good for another 15pc. Banking, life sciences, and sales and marketing also feature.

Some of these are the very sectors that have been booming during lockdowns. We can see in the figures quoted above that they aren’t enough, at least now, to produce growth for the company as a whole but they do give it something to build on.

“Our high exposure to skill-short sectors such as technology and life sciences added resilience,” Hays said in last year’s annual report.

Alistair Cox, the long-serving chief executive, added: “We have continued our strategic investments in key markets such as our IT specialism globally, which demonstrated resilience with fees down only 4pc in the year despite the pandemic. We are now one of the world’s largest recruiters of IT talent.”

Other aspects of the firm’s business mix also inspire hope. Almost 60pc of its net fee income comes from the recruitment of temporary workers or contractors, which tends to hold up better in poor economic times, as employers seek flexibility over their costs.

The firm is also well represented in parts of the world where the use of agencies as opposed to in-house recruitment is relatively low. This presents “clear structural growth opportunities”, it said.

“Fifty-six per cent of our net fees are generated in such structural growth markets, including places such as Germany and Asia, where the first-time outsourcing of the recruitment of skilled staff remains a key long-term opportunity,” the firm added.

Finally, its position as a market leader and its financial strength – after a £196m share sale in April last year its year-end net cash of £366m gave it “our strongest balance sheet ever” – should be reassuring to clients who may decide, in the company’s words, to “fly to quality” in uncertain times.

To summarise: an economic backdrop of huge uncertainty and a company that is probably as well positioned as it can be in the circumstances. What then of a share price that has shrugged it all off?

In the words of one shareholder, Tim Guinness, who holds Hays in his Guinness UK Equity Income fund, it is “just a hold at the moment – it’s not the sort of stock where you’d say, ‘buy tomorrow’.” Existing shareholders can stick with it but there’s no reason for anyone to buy.

Questor says: hold

Ticker: HAS

Share price at close: 155p