The stock market crash has created plenty of investment traps that share pickers are falling into. Hays (LSE: HAS) is one that I think comes into this category. The recruitment giant’s share price has attracted some healthy dip buying after its plunge to three-year lows in March. But the FTSE 250 firm’s much too risky in my opinion given the scale of the storm approaching the UK jobs market.
It’s a worry that latest research from Manpower this week has exacerbated. According to the recruiter’s latest Employment Outlook Survey, employers’ hiring intentions for the third quarter of 2020 have slumped to -12%. This is the worst result since records began in the early 1990s, the survey showing declines in all major sectors.
On a brighter note, the majority (57%) of respondents to Manpower’s study said that they expect hiring conditions “to return to pre-Covid-19 hiring levels by this time next year.” It’s not a view I’m prepared to share given the storm coming the UK’s way, not just due to the coronavirus crisis but because of the growing threat of a no-deal Brexit at the end of 2020.
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A FTSE 250 share under pressure
The view isn’t miserable for all of London’s listed recruiters. I recently shared why I think SThree’s focus on niche labour markets could help it weather the storm. But this isn’t something that Hays can rely upon. Its net is slung much far and wide and this makes it much more exposed to the broader fortunes of the domestic economy.
The scale of FTSE 250 company Hays’ troubles was illustrated in early April’s market update for quarter one. Then it warned that it had seen “a very material deceleration in client and candidate activity” and as a consequence, that operating profit for the fiscal year to June 2020 would be “materially below” broker expectations of £190m. Profits for financial 2019 came in at shade below £250m.
Clearly investors need to be wary of significant problems in the upcoming financial year too. During the financial crash of 2008/09, net fees at Hays slumped 40% from peak to trough over a nine-month period. But the economic fallout of the coronavirus saga threatens to be much, much worse. The Bank of England has predicted the sort of downturn not seen since the early 1700s!
Better buys out there?
Okay, Hays’ broad geographic footprint means that it sources less than a quarter of net fees from these shores. But conditions threaten to be difficult in its other territories too. As I commented with SThree, I am extremely nervous over the outlook for the German labour market too. This is Hays’ single largest market and it accounts for 27% of fees.
Hays investors also need to be concerned about its reliance on a strong market for permanent vacancies. It generates 43% of its business from roles of this type versus 57% for temporary positions. These roles are of course the first to dry up when economic conditions slump
All things considered, the recruiter is packed with too much risk for my liking. I’d happily avoid this battered FTSE 250 firm and invest my cash elsewhere.
