Hays
14% Fee growth rate in Germany
It is becoming increasingly difficult to read the runes from the global recruitment specialists as they report on trading for the last few months of last year. As I have said before, this is important because they are a good measure of business confidence and the general direction of the economy.
What is emerging, and what is apparent from the update from the largest, Hays, is that the parts are moving in different directions, in what one analyst describes as “an unsynchronised global recovery”. This is in contrast with other upturns, which tended to be more symmetrical.
The cause here is the oil price and China, I suspect, plus drag from the strength of sterling against the euro and other currencies. Hays has echoed Robert Walters and Michael Page International in recording a definite slowdown in confidence in the UK as the year neared its close. Time will tell if this is a genuine trend.
Employers, having largely topped up their staff since the economy started to turn up, are reasoning that further hiring can be deferred. In the private sector, Hays’ net fee income growth halved to 3 per cent in the fourth quarter, against the third. In the public sector, it went into reverse, a 2 per cent fall against a 5 per cent rise.
The Continent and the rest of the world performed better with a 12 per cent rise in reported terms. There has been little really bad economic news out of Europe, so confidence is building, and Hays is still gaining business because the concept of outsourcing hiring is less developed.
This has a small negative effect on the bottom line, because these businesses are less developed than the UK and so less profitable as investment is needed. In Asia, the natural resources economies, such as Australia, remain broadly flat, but Japan and China were strong.
Hays’ shares have been poor performers in the market rout since the start of the year, falling ½p to 120½p after sliding from more than 150p at the end of last year. The company will be debt-free by its financial year-end in June and then will be paying special dividends. For now, a price-earnings multiple of about 15 and a dividend yield of under 3 per cent does not encourage an immediate purchase, given those uncertainties.
My advice Avoid for now
Why Shares have come back a long way and prospects for special dividends are attractive, but uncertainties remain over whole sector
Provident Financial
1.42m Vanquis Bank customers
Provident Financial is one of those businesses where you wonder when or how the growth can run out.
Provident provides sub-prime and doorstep lending to people who cannot obtain credit elsewhere. About two thirds of the business is now the Vanquis bank, which is adding customers at a rate of about 430,000 a year and is keeping bad debts stable. It now has 1.42 million customers, a startling total of people rejected by the traditional banks.
The orginal core of the business, consumer credit, includes doorstep selling and the daftly named Satsuma online debt business. The company has been reining back a bit on both, trying to harden up its credit criteria and cut bad debt. Satsuma probably expanded too fast, although it will produce its first profits this year.
The question has to be what can go wrong. Indications are that consumer credit demand remains strong on the back of increased spending, something apparently confirmed by some of those Christmas retail trading updates. Some analysts worry that the new challenger banks will come in and, desperate to sign up customers and unable to prise them away from the incumbents, take Provident’s business. This looks implausible. Provident is in too specialised a field to be vulnerable to sudden competition. The shares have been weak of late and fell another 73p to £31.56 after the anodyne trading update. They sell on 19 times’ this year’s earnings, but a dividend yield of above 4 per cent should provide a degree of support.
My advice Buy long term
Why Prospects for growth still seem strong
Barratt Developments
20% rise in forward order book
I am beginning to run out of ways of saying that the housebuilders seem to have it all their own way.
Barratt Developments is one of those that is handing back large amounts of cash to investors, a second year of a three-year plan that will see approaching £1 billion in dividends, special and ordinary.
The housebuilders are hitting constraints in the number of new homes they can provide, such as availability of land and skills needed to do the actual work, despite the government’s exhortations. Speak to each one and they have different views just how constrained they are. A number, though, had to raise fresh cash as the downturn hit, Barratt included, so some return of capital seems appropriate, for several reasons.
Barratt’s completions rose by almost 10 per cent in the first half to the end of December and average selling prices for private homes were up by 11 per cent. The landscape does not come much more positive than this and the order book is 20 per cent higher year-on-year.
For investors, the shares offer a forward yield of 4.7 per cent. If you assume that the housing boom will continue, this income is a good enough reason to hold.
My advice Buy long term
Why Dividend yield and continuing housing boom
And finally ...
Tony Durrant, the chief executive of Premier Oil, is betting the farm on buying the North Sea assets of E.ON. If the ultra-bears are right and the oil price plunges to $10 a barrel and stays there, it will not look too clever in retrospect. If oil stabilises or gains, on the present numbers this could be a very clever piece of bottom-fishing from a buyer keen to get rid. I suspect the latter, but I am not sure I would be buying Premier shares just now, once they come back from suspension, or anyone else in the sector.
