Business Overview
Hays Plc (LON: HAS) is a London, the United Kingdom-based recruitment company. The company’s geographical business is differentiated in four segments: Australia & New Zealand, Germany, United Kingdom and Ireland and Rest of World. The group has its operations across 250 offices in 33 countries.

Trading Update
On 15th October 2019, Hays announced its trading update for the Q1 FY2020 ending 30th September 2019. Driven by tough growth comparatives and difficult economic conditions, the company’s net fees were down by 1 per cent WDA basis (working day-adjusted). The net fees from Australia & New Zealand business were down by 2 per cent on a year-on-year basis, while on WDA basis net fees was down by 3 per cent. Driven by macroeconomic challenges, net fees from German business remained flat for the period, while on WDA basis net fees was down by  2 per cent. The net fees from the UK & Ireland business were down by 2 per cent on a year-on-year basis. The company witnessed growth in net fee by 4 per cent from its ROW (Rest of world) business. The consultant headcount went up by 1 per cent for the quarter and YoY basis. The company with net cash of £90 million remained in a good position for the period.

Financial Highlights – Financial Year 2019 (30^th June 2019, GBP, million)

(Source: Annual Report, Company Website)
 
For the financial year ending 30^th June 2019, the company’s revenue stood at GBP 6,070.5 million versus GBP 5,753.3 million in FY2018. Driven by solid performance from German and Row (Rest of World) businesses, the company’s net fees surged to GBP 1,129.7 million in FY2019 from GBP 1,072.8 million in FY2018. The company’s operating profit declined to GBP 233.7 million in FY2019 from an operating profit of GBP 243.4 million in FY2018. The PBT (Profit before tax) was at GBP 231.2 million in FY2019 versus a PBT (Profit before tax) of GBP 238.5 million in FY2018. The Profit after tax stood at GBP 161.7 million in FY2019 versus GBP 165.8 million in FY2018. The company’s basic earnings per share stood at 11.10 pence in FY2019 versus 11.44 pence in FY2018. The company’s diluted earnings per share stood at 10.97 pence in FY2019 versus 11.30 pence in FY2018.

Share Price Performance

Daily Chart as at 23rd December 2019, before the market close (Source: Thomson Reuters)

On 23rd December 2019, Hays Plc shares were trading at GBX 181.60 at the time of writing before the market close (at 1:15 PM GMT), up by 1.06 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 186.00/GBX 127.08.The company’s stock has given investors 0.55 per cent of a negative return in the last week.

Valuation Methodology

*Peers: Rentokil Initial Plc, Compass Group Plc, Ferguson Plc, Hydrogen Group Plc and Gattaca Plc.

Conclusion
Although the company’s top-line performance has improved, the bottom-line performance has declined for the financial year 2019. The company may not be able to meet its liquidity requirement as it operates in a highly competitive market, which requires continuous investment.

The company’s operations can be affected negatively due to ongoing uncertainties created over the Brexit, as it would disturb the supply chain. As the company operates inmultiple geographies, its profits can be impacted negatively due to foreign exchange rate fluctuations.

The group faces a risk of fines and investigations which can impact the future growth as it operates in an industry which is subject to the adverse regulatory headwinds, breaches of which can be potentially fatal for the group. The prevailing uncertainty had made it difficult for the company to predict the outcome of investments made.

The company’s EV/EBITDA, Price/Earnings and Price/Cash flow multiples are significantly higher as compared to the industry multiple, reflecting overstretched valuations.

Based on the risks associated and support from valuation done using the above method, we have given a “Sell” recommendation at the current price of GBX 181.80 (as on 23^rd December 2019, before the market close at 1:26 PM GMT) based on 15.64x NTM Price/earnings (approx.) on FY20E earnings per share (approx.).

*All forecasted figures and peers have been taken from Thomson Reuters.

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