On 8 January, the Hays (LSE: HAS) share price slumped by 7.2%, making it one of the biggest FTSE 250 fallers on the day.
I’ve thought of buying this one at different points in the past couple of years, and the news made me raise my eyebrows a bit.
Profit warning
The firm, in the specialist recruitment business, issued a profit warning.
There’s been a slowdown in the jobs market, which maybe shouldn’t be too much of a shock considering the year we had in 2023.
Hays says there was “a clear slowdown in most markets in December.” It’s mainly in recruitment for permanent positions. But even temporary work placements fell over the course of the year, and the firm said it didn’t see a rise in seasonal work.
It means the company should post pre-exceptional operating profit of around £60m for the first half of the year. And that’s below analysts’ expectations.
What does it mean?
Forecasts had suggested a modest dip in earnings this year, followed by a couple of years of growth. Perhaps more important, we were looking at dividend rises in the next few years too.
That seems a lot less likely now. And with a forecast yield for the current year of just 2.8%, it’s not exactly an income investor’s dream.
The Hays update also spoke of continued uncertainty, saying it’s “too early to say if December’s weakness reflects a sustained market slowdown or some placement deferrals.“
Cost savings
Going into 2024, Hays has stepped up its efforts to cut costs. The company now says it could end up with an annualised £30m in savings.
We should see restructuring charges of around £12m in the current half though. So that should hit the interim figures.
They should be with us on 22 February. And until then, putting a valuation on Hays shares could be a bit tricky.
I want to see how broker forecasts change now. But that’s only a short-term thing, and I’m more interested in the long-term outlook.
What should we do?
The thing is, the recruitment business is volatile. It’s often seen as a barometer of the economy in general. But it’s a bit more than that.
When things are rosy, recruitment firms can often do even better and their shares can beat the market.
And when the economic clouds loom, well, you get the picture. But which is the better time to buy?
For me, it has to be when the near future looks uncertain, and companies are cutting their hiring.
Buy while down?
The first sign of bad news is rarely the last sign though. And those H1 results could be tougher than we hope.
So I fear more volatility in the Hays share price, and it might well have further to fall.
Still, the balance sheet is strong, with £60m in net cash.
And for investors who like the business and are bullish on the long-term future, I think the next few months could present a buying opportunity.
