- Latest quarter shows fourteenth consecutive year-on-year drop in net fee income
- Recruiter continues to shed its own staff
- Rate of decline in UK continues to slow and US offers positive momentum
- Shares stumble after this year’s sharp rally and return to 1993 levels
“Investors still cannot decide whether recruitment specialists will be helped by artificial intelligence, as the technology makes it easier to sift and select candidates, or a victim of it, should overall employment numbers drop as a result of mass adoption, but an even more pressing concern remains business confidence,” says AJ Bell investment director Russ Mould.
“Hays’ latest quarterly update offers a mixed picture, at best, and the share price is in retreat as a result, albeit after a very sharp rally from the multi-decade lows plumbed in spring and summer.
Source: LSEG Refinitiv data
“The good news is that the rate of change in annual net fee income, or the so-called second derivative, continues to improve, as the rate of decline slows once more. Net fee income fell 3% year-on-year on a like-for-like, currency-adjusted basis, in the July-to-September quarter.
“That was the slowest rate of decline since the April-to-June quarter back in 2022.
Source: Company accounts
“In this respect, business seems to be getting less bad.
“However, that still represented the fourteenth straight decline in like-for-like net fee income on a year-over-year basis, so business is still getting worse, not better. Of particular concern is the way in which the decline in fees from permanent hires stopped improving, despite some positive signs in America.
“If companies are nervous, they will hold back on permanent hires and take on more temporary positions and if things are looking really black then they will hold off on the latter, too, or even cut posts altogether. The rate of decline in activity and fees booked from temporary hires slipped a little in the latest quarter, too.
Source: Company accounts
“Germany is still a laggard and activity in the UK & Ireland still seems relatively sluggish, too, which may remain 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, both for non-fee earners and consultants.
Source: Company accounts
“This all suggests that any investor looking for a recovery in the share price, and the underlying business, has to be in it for the long haul, but recruitment is by definition a cyclical business and an upturn should come at some stage, unless AI really does lead to mass redundancies.
“Thus far there have always been peaks and troughs. Hays has already made a loss for three straight years and analysts expect a fourth consecutive annual deficit in the twelve months to June 2027, to again show how difficult trading has been.
“However, peak after-tax profits were £166 million in 2018.
“Hays’ stock market capitalisation currently represents barely five and a half times that sum, so a return to anything like the prior peak figure at some stage would leave the shares looking cheap on an earnings basis.
“The average net profit over the past decade is £80 million, so Hays trades on around 11.7 times ‘mid-cycle’ earnings, which again does not look unduly expensive, at least to investors who believe that the good times will roll again at some stage.
Source: Company accounts, Marketscreener, consensus analysts' forecasts. Financial year to June.
“The balance sheet is not quite as iron-clad as before, but it should still prove robust enough to permit brave, contrarian investors to wait for the cycle to turn.
“At the end of June 2026, Hays had £112 million in cash on its balance sheet, compared to £92 million in borrowings and £153 million in lease liabilities. That gave a net debt position of £133 million, against tangible equity of £169 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, and Hays continues to work on its cost base, by reducing headcount and also exploring strategic action in certain countries, notably in Europe, Asia and Latin America.”
