City Comment

03 March 2010

Hays reported its results for the six months to December 2009 on Thursday. Although coming in marginally above our forecast, the results did not make pleasant reading. Net fee income at £264.8m was down 35% in constant currency terms while pre-tax profits were down by 97% at £3.4m. Had it not been for currency exchange gains of £10m at the operating level a loss would probably have been recorded. In recent weeks the group has seen modest sequential improvement in demand in some overseas territories and stability in the UK and expected its performance in the UK to be similar in the second half.

Although the maintained dividend was good news the shares nevertheless tumbled by 8% on the day from 113.3p to 104.2p as investors finally realised that there will be no rapid recovery in the recruitment sector in 2010.

Michael Vassallo, equities analyst, Brewin Dolphin Investment Banking
We are now in the midst of reporting season when the December and June year-end companies announce prelim and interim results to the stock market. Over the next two weeks we will have announcements from the leading listed recruiters Hays, Michael Page and Robert Walters (SThree reported earlier this month). The City does not like uncertainty and the increasing prospects of a hung parliament in the UK or more countries (for example, Spain) unveiling mounting debt issues like Greece is unsettling. Share prices have fallen over the last two weeks as investors struggle with these uncertainties and it is likely that the recruiters will need to be a little more bullish on current trading to prompt a further share price rally in the sector.

Share prices have fallen over the last two weeks as investors struggle with these uncertainties and it is likely that the recruiters will need to be a little more bullish on current trading to prompt a further share price rally in the sector.

The City has already been given a glimpse of what to expect via the year-end trading updates in January which outlined a more optimistic tone. Analysts and investors are therefore likely to focus on current trading and will be evaluating prospects for upgrades (or downgrades) to profit forecasts for this year, most likely on the back of headcount plans or growth in core geographies differing from market expectations.

Michael Page is next to report and also has issues to contend with as Europe is a major profit driver for the company. Firstly many commentators expect that sterling will stay weak against the euro and secondly the issues surrounding Greece could potentially impact growth elsewhere in the European community.

The information contained in this article has been taken from sources disclosed in this presentation and is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. The opinions expressed in this document are not the views held throughout Brewin Dolphin Ltd. No Director, representative or employee of Brewin Dolphin Ltd. accepts liability for any direct or consequential loss arising from the use of this document or its contents. We or a connected person may have positions in or options on the securities mentioned herein or may buy, sell or offer to make a purchase or sale of such securities from time to time. In addition we reserve the right to act as principal or agent with regard to the sale or purchase of any security mentioned in this document. For further information, please refer to our conflicts policy which is available on request or can be accessed via our website at www.brewindolphin.co.uk
The value of your investment or any income from it may fall and you may get back less than you invested. Past performance is not a guide to future performance. If you are in any doubt concerning the suitability of these investments for your portfolio you should seek the advice of a qualified investment adviser.