There should be no real surprise that Hays’ UK business, about a quarter of all group fee income, should have suffered its second quarter of contraction, even if there are tentative signs that things are turning up again. The uncertainty over Brexit after the referendum means that employers are less willing to take on staff.
A 10 per cent fall in UK and Ireland fee income in the second quarter entirely matched the fall in the first, in the immediate aftermath of the vote. The slowdown was most marked in the public sector, with a fall of 13 per cent in net fees and the private sector was off 9 per cent.
There is, as ever with headhunters, no forward visibility of business and the current quarter, when staff moves typically pick up, will be crucial. The indications were, though, that as last year reached its end the fall in fee income had moderated to perhaps 7 per cent in December.
It is hard to be too optimistic over the UK business given the uncertainties of the next couple of years and a continuing contraction looks likely. Elsewhere, Hays’ spread of business in 33 countries meant that the performance was more resilient, and a like-for-like rise in fees of 2 per cent across the group represented the 15th quarter in a row of growth.
There was even some improvement in Australia, which has been a dull market because of the fall in hirings in the mining sector, with a 13 per cent rise. The country is set to be the second biggest generator of earnings by the end of this year.
On the continent, the two largest markets saw encouraging growth. Germany was up by 7 per cent, or 11 per cent if you adjust for one-off movements in working days, and France by 14 per cent.
Hays continues to pile up the cash, £48 million at the end of the second quarter. The company has indicated that anything above £50 million will be handed back to investors, which will mean total payouts of about £100 million in the financial year to June 30. The shares collapsed to well below 100p after the referendum, which encouraged some of the big City institutions to start buying again. Off 1¼p at 157½p, they sell on almost 19 times earnings, which suggests further upside may be limited.
My advice Avoid
Why The shares have come up a long way since the referendum, while the UK side of the business, a quarter of the total, will stay subdued
Booker Group
Booker has comfortably beaten market expectations for the final quarter of 2016, helped by a few following winds. The company has had the Londis and Budgens franchises for more than a year; these had a good Christmas as people were prepared to spend on food.
The cash and carry retailer always strips out tobacco sales, and these were in reverse on a like-for-like basis by 1 per cent — the ban on advertising hitting sales at corner shops. Take these out and like-for-like sales were ahead by 5.1 per cent in the three months. Some analysts were looking for 2 per cent, others for a flat outturn.
Of that rise, about 0.5 per cent was down to the timing of the new year bank holiday. Londis and Budgens probably chipped in another 1 per cent, while the return of food price inflation on products, such as cooking oil, put in another 1 per cent.
Booker paid a special dividend last summer from its strong cash generation and has indicated another is due this year. It has managed to increase dividends over the past few years while continuing to make acquisitions. The nascent Indian operation, six cash and carry stores, remains loss-making and a joint venture partner is being sought.
From an investment perspective, the problem is that Booker’s extraordinary record of reliability has left the shares, up 4p at 185½p, on a high rating, about 23 times this year’s earnings and yielding 4.4 per cent. In these markets reliability ought to come at a premium, if you are prepared to take a long-term view.
My advice Buy
Why The shares are dear but further growth will come
Jupiter Fund Management
If you think that these markets are looking a little toppy, fund managers are not the best place to be — as has been said here before. Jupiter Fund Management did well enough in the first three quarters of last year but upset the market with a £373 million net outflow in the fourth. We are assured that this is entirely company specific and has to do with one client taking its money out of its Merlin and European strategy funds, balanced with decent inflows into emerging markets.
For the year, then, net inflows were £859 million, leaving assets under management at £40.5 billion. The fund manager has always been a good yield stock, inclined to grow organically rather than splash out on large acquisitions and prepared to return earnings to investors.
The shares lost 29p to 416p — more than 6 per cent — on those outflows, which some analysts apparently did not see coming. They have entirely recovered from their post-referendum collapse, which sent them back to not much more than 300p. They sell on 14 times earnings for last year and yield 6.6 per cent. That is an attractive income but there are safer yields elsewhere.
My advice Avoid
Why Choppy markets will not help fund managers in 2017
And finally...
So far so good for Premier Oil, one of this column’s tips for 2017 and up again on an inline trading statement. Production last year rose by 24 per cent on 2015 even if the trouble-plagued Solan field in the North Sea is still underperforming. Premier struck a neat deal at the start of last year to buy assets from E.ON of Germany at an attractive price and production from these is running ahead of expectations. No news on the refinancing of the company’s $2.8 billion of debt but this looks increasingly like a done deal.
