Hays produced its third quarterly trading update in a row that beat market expectations. For the first time in almost four years its three biggest markets — Britain, Germany and Australia — were all in positive territory, as recorded in the first quarter of its financial year, to the end of September.
In Australia, the natural resources sector is on the way up, and the 2 per cent rise in fee income there is the first in two years.
Britain was especially strong, confirming the experience of Robert Walters, a smaller rival to Hays in the recruitment business, a couple of days ago. The sector is one of the clearest indicators of economic recovery, as people become more confident in moving jobs, and that upturn has spread to all regions save Scotland, where the referendum created uncertainty.
So if you exclude the City, and there are signs that hiring is rising again in financial services, the rise in fee income in London was 23 per cent. The recovery is spread across public and private sectors; in the former, hiring in education was boosted by the new scholastic year.
And yet the fortunes of recruiters such as Hays are tied to macroeconomic factors, to the extent that there is little point in making forecasts too far out. Germany and France may have grown fee income by 7 per cent apiece but the signs are not good from the eurozone, and that could go into reverse again.
Hays makes three points in its defence. There was no sign of a tailing off as the quarter approached its end, or so far into October.
Its model in France, providing temporary staff on fixed-term contracts, is proving popular with cautious employers. Hays reckons it can still continue to increase fee income whenever GDP growth in any given territory is at 1 per cent or more.
The shares, up 2¾p at 122¾, sell on about 17 times this year’s earnings. It is true that fee income growth will increasingly feed through into earnings, and analysts were inclined to upgrade their forecasts for this year. That caution remains, though.
Debt is being eliminated, and there will in due course be a special dividend. This looks the best reason to hold the shares.
Up 6%rise in group headcount
My advice Hold
Why The latest in a series of encouraging updates, but there must be some concern over prospects for its business in the eurozone
There has been such a rush to register new domain names on the internet that the Internet Corporation for Assigned Names and Numbers, the international body overseeing the process, has been swamped. This is the charitable explanation for the delay in transferring the .trust name from Deutsche Post, which was happy to sell to NCC Group.
NCC wants to launch a third cybersecurity service, in addition to its advice and data storage businesses. The domain would let companies conduct transactions with each other in the certainty that they were dealing with the right site and not a scammer or phisher.
The market is potentially huge, but the service has been delayed by three or four months and will now start in February. A selection of NCC clients will then be introduced, with first profits through by the 2015-16 financial year.
The advice side is growing faster than storage, with revenues up 14 per cent in the four months to the end of September, traditionally the quietest period for NCC. The shares, up 2p at 187p and a subdued market this year, sell on 21 times earnings for this year, depressed by the investment in the domain. One for the patient.
£39.5m, up 11 per cent
My advice Long-term hold
Why New market is promising, if it is taking time to enter
Shares in John Wood Group have been weak over the past month or so, on fears that the falling oil price will mean less investment in the sector, a slackening of contract wins and the need to take work at lower margins.
The good news is that none of this seems to be happening. Wood, because of its diverse workload, is less exposed to cutbacks by the big producers than others in oil and gas services.
The company warned last year that its engineering division might be hit, as there was a dearth of early stage wins that would then lead to larger contracts.
Yesterday’s trading announcement indicated again, after a positive update in August, that some early stage work was trickling in again, which augurs well for prospects for next year and 2016.
The news coincided with a day for investors and analysts to hear about prospects for its PSN Production Services division. This is doing well out of the shale boom in the US.
Five years ago it barely existed; today, aided by the purchase last year of Elkhorn, revenues are standing at $1 billion. Other work is coming through from large clients such as ExxonMobil and Woodside. In the turbine division, Wood is close to resolving the difficult Dorad contract in Israel, with the chance that some earlier losses may be written back at the year end.
I tipped the shares, up 13½p at 692p, at the start of this year. They now sell on a very reasonable 11 times’ this year’s earnings.
On the basis of all the above, recent falls look overdone. Buy.
$1bn size of US shale revenues
My advice Buy
Why The fall in the shares looks overdone
And finally . . .
Breedon Aggregates, the UK’s biggest independent producer of heavy building materials, continues to make infill acquisitions even as it waits to see what assets will fall off the table from the Holcim merger with Lafarge. The latest deal is for Barr Quarries in Scotland, which also has asphalt and ready-mixed concrete plants, for £20.8 million or a bit less than eight times earnings. One day that transformational acquisition will come along but, for now, Breedon is doing well enough out of consolidation in the industry.
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