On the face of it, Hays’ first-quarter figures from the UK and Ireland to the end of September, representing 27 per cent of the business, are a bit of a shocker. Fee income fell by 10 per cent. Plainly, the sort of employers that use Hays have become very cautious in taking on new staff, in Britain at least.
Fees fell in the private sector, about three quarters of the UK total, by 10 per cent. Public sector was down by 12 per cent. London was down 17 per cent. The company was putting a positive spin on the figures, though. The fall in June, including three weeks before the referendum, was 7 per cent. There are signs that the market was stabilising as hirings enjoyed the usual seasonal pick-up in September. Hays believes that the worst of the post-Brexit slowdown is already past.
Time will tell. What is clear is that any post-referendum damage has been easily balanced by currency gains as the three quarters of earnings that are made overseas are repatriated in sterling. Like-for-like fees across the group were up by 3 per cent in the quarter; take in those currency gains and the rise was 17 per cent.
Hays points out that had the profits for the financial year to the end of June been restated at present exchange rates, the £181 million reported operating profit would have risen to £216 million. The company is doing particularly well in Germany, along with several of its peers that have already reported for the summer. Australia appears to be picking up again after the 90 per cent fall in work from resources and mining seen since the peak.
From an investment perspective, the build-up of cash remains all-important. Hays had £20 million of at the end of June, after a quarter in which traditionally balances diminish. The company generated £110 million in the last financial year; if this is repeated, and there seems little reason why it should not, this will free up about £60 million to be paid out in special dividends.
The shares rose 4p to 139¼p. Their recovery since the summer means that the yield is less impressive, but take into account that special payment and it still stands at 5 per cent. That is a good enough reason to hold the shares.
MY ADVICE Hold
WHY The main attraction is the prospects for special dividends. The benefit of the low pound looks already reflected in the price
Asos
Asos is an odd company. Its £4.4 billion market capitalisation would put it within striking distance of the FTSE 100, except that it remains resolutely quoted on the junior Alternative Investment Market. The company continues to grow revenues at a rate unheard of among other fashion retailers, up 27 per cent in the UK and 25 per cent from international customers in the year to the end of August.
Its involvement with its mainly younger customers is remarkable. Apparently the average active consumer spends more than 70 minutes a month online on its site. There are about 4,000 new lines introduced each week, the equivalent of the average high street store’s total product line. Those young consumers appreciate the fast turnaround of cheap, fast-turnover goods.
Odder still, from an investment perspective the company has never paid a dividend and has never shown any sign of wanting to, despite ending the last financial year with more than £170 million in the bank. Instead, the cash will be used to invest in the business on logistics and distribution, from £120 million to £140 million in the current year, against £87 million last time.
The shares, off 471p at £48.61 last night, veer up and down to no particular purpose. They still sell on more than 60 times’ earnings and with no dividend yield.
This one fails to obey any of the normal rules of investment. Buy on any weakness, as other investors seem to do.
MY ADVICE Hold
WHY The shares look pricey, but have a mind of their own
Connect Group
There seems little rhyme or reason behind the decline in the share price in Connect Group, back from approaching 170p last month and off ½p yesterday at 140½p on some perfectly respectable full-year figures.
This is the old Smiths News business, still struggling to achieve its targets of making more than half its profits from outside its newspapers and magazines operation (the total now stands at about 42 per cent). The company is hitting some heavy headwinds. Its educational side is being affected by cutbacks in local authority spending as more money goes towards teachers’ pay and pensions. The Pass My Parcel delivery business, which is requiring hefty investment, lost £4 million in the last year and will lose another £2.5 million in this one.
Revenues at the Smiths News business were down by 2.4 per cent, a bit better than expected. Last year’s growth came from the first full year of profits from Tuffnells, the specialist delivery service. The shares have fallen so far that the multiples no longer look that challenging, seven times’ earnings and yielding almost 7 per cent.
Cheap at that level.
MY ADVICE Buy
WHY On any metric the shares look cheap with a good yield
And finally ...
Regular readers will know that the problem with gold is its inability to deliver investment income. Still, in uncertain times the precious metal does have its fans and is still wedged at about $1,250 an ounce, even if it is well back from its best level earlier in the summer. Gold shares such as those of Randgold Resources, the west African producer, were up sharply yesterday as the London Bullion Market Association met in Singapore and some traders are forecasting a rise to more than $1,300 again.