Hays PLC (LSE:HAS) shares fell 3% on Wednesday after Morgan Stanley downgraded the stock to Underweight and cut its price target to 55p from 64p.
The investment bank highlighted multiple reasons to be cautious about the recruiter's outlook, including weak staffing data in Germany and the UK, which account for around half of the company’s net fees.
This, in turn, suggests that net fees could decline by about 3% in the 2026 financial year. Morgan Stanley sees risks to consensus operating profit forecasts, expecting around 10% downside over the next two years.
It noted that while Hays has committed to cost-cutting, the scale needed to meet consensus profit targets looks unrealistic. The bank expects operating profit to be around £45 million in 2025, compared to consensus estimates closer to £57 million.
A potential dividend cut also weighs on the stock. The company is forecast to generate free cash flow of only £12 million this year and expects to hold a net cash position of about £20 million by mid-2026.
Morgan Stanley believes this cash generation is insufficient to maintain the current dividend policy and estimates a dividend cut of around 80%, leaving a yield close to 1%.
The note also flagged concerns about the impact of artificial intelligence on staffing. Hays’ focus on junior white-collar roles may make it more vulnerable to AI-related disruption compared to peers more focused on senior roles or different sectors.
Despite trading on multiples above its historical average, Morgan Stanley concluded that Hays’ current valuation does not fully reflect these risks. The new price target implies roughly 15% downside from the current share price.
The shares fell 1.75p to 65.5p.