- Latest quarter shows tenth consecutive year-on-year drop in net fee income
- Recruiter continues to shed staff
- Slowing rate of decline in fee income offers some scope for optimism
- Shares advance from lowest levels since 1993
“When a share price is trading near 32-year lows it does not always take much to offer investors a pleasant surprise, because expectations are so low, and Hays’ first-quarter trading update seems to be a good example of this,” says AJ Bell investment director Russ Mould.
“A tenth straight quarter of year-on-year declines in net fee income might not sound like much to shout about, but there is no profit warning from chief executive Dirk Hahn and the rate of decline is easing.
Source: LSEG Refinitiv data
“It is this improvement in the rate of change, or the so-called second derivative, which may be offering a crumb of comfort to shareholders. Net fee income fell 8% year-on-year on a like-for-like, currency-adjusted basis, in the July-to-September quarter but that represented an improvement on the 9% rate of decline seen in the two prior three-month periods.
Source: Company accounts
“In this respect, business seems to be getting less bad. That in turn prompts thoughts that if things have stopped getting worse, then they could eventually get better, and that if they are going to get better, then the time to act is now, in the view the share price will try to anticipate the improvement rather than wait around for it to become fact.
“Would-be bulls of the downtrodden stock will also note how the rate of decline in temporary hiring activity seems to be past the worst. Firms may be inclined to test the waters by hiring temps first, if they sense an improvement in their own business, before they take the plunge with permanent hires. That said, the pace of the decrease in permanent positions seems to be easing, too.
Source: Company accounts
“The UK & Ireland are still underperforming the overall group, which remains a cause for concern among domestic investors and Hays itself is clearly far from confident in the outlook, as it continues to trim its own headcount.
“Fee-earner posts were reduced by a further 4% in the quarter, and 15% year-on-year, to just over 5,800, down by more than a third from the post-pandemic peak, of nearly 9,100 reached at the end of the 2022 calendar year.
Source: Company accounts
“It could well be a long haul, but recruitment is by definition a cyclical business. There have been, and always will be, peaks and troughs. After two years of losses, Hays may well be near the lows of its cyclical fortunes, but after-tax profits show a prior peak of some £166 million in 2018.
“Hays’ stock market capitalisation currently represents barely six times that sum, so a return to that figure at some stage would leave the shares looking cheap on an earnings basis.
“The average net profit over the past decade is £98 million, so Hays trades on around 10 times ‘mid-cycle’ earnings, which again does not look unduly expensive, if you believe that the good times will roll again at some stage.
Source: Company accounts, Marketscreener, consensus analysts' forecasts. Financial year to June.
“The good news is that the balance sheet is strong enough to permit brave, contrarian investors for the cycle to turn.
“At the end of June 2025, Hays had £169 million in cash on its balance sheet, compared to £132 million in borrowings and £180 million in lease liabilities. That gave a modest net debt position of £143 million, against tangible equity of £285 million. It looks as if there has been a cash outflow in the first quarter of the new year, but some of this will be seasonal.”
