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Hays reports slowdown in gross profit growth despite benefit of later Easter

“While we remain mindful of macroeconomic conditions, the outlook remains positive across most of our markets,” said chief executive Alistair Cox
Hays
IT was the strongest performing segment

Hays PLC (LON:HAS) reported a slowdown in gross profit growth for the third quarter, blaming tough comparatives in its German, Australian and New Zealand job markets.

The recruitment firm said net fees – a measure of gross profit – rose 6% on a like-for-like basis in the quarter ended March 31, compared to a 9% increase in the second quarter.

The slowdown came despite Easter falling later in the year, contributing 1% to growth.

READ: Hays shares hit by fears of German slowdown despite first half profit growth

Like-for-like net fees in the Australian and New Zealand division, which accounts for 17% of the total, edged up 3% in the third quarter after an 8% rise in the previous quarter due to difficult comparatives and a tough construction and property market.

Australia delivered a 3% rise in net fees but New Zealand dropped 8%.

Germany hit by challenging macro-economic backdrop

The group’s largest market of Germany, which represents 27% of total net fees, saw like-for-like net fees increase 6% after a 15% jump in the second quarter, due to tough comparatives and a challenging macro-economic backdrop.

The UK and Ireland arm delivered a 3% increase in net fees, making up 23% of the total and largely in line with the last quarter, led by IT job placements.

The rest of the world business posted a 9% gain in like-for-like net fees, representing 33% of the total, after a 10% increase in the second quarter.

By segments, IT was the strongest performer across its different markets.

The company’s net fees are generated 58% from temporary and 42% permanent job placements.

“While we remain mindful of macroeconomic conditions, the outlook remains positive across most of our markets,” said chief executive Alistair Cox.

Shares fell 3.8% to 156p in morning trading. 

RBC Capital Markets prefers PageGroup

RBC Capital Markets maintained a 'sector perform' rating and target price of 210p.

The broker said it does not expect material changes to consensus forecasts today but noted that the German run–rate is weaker than expected and comes on the back of significant investment in that area.

"In addition, we would point to a slowing Australian market, with the slowing job ads data a concerning lead indicator," it said. 

"That said, valuation is undemanding and we think the stock is yielding close to 7%, including specials for 2019.

"However, we continue to prefer PageGroup given its higher growth, greater gearing to perms and potential for higher operational leverage and Adecoo or Rand Group for cheaper valuations and easier comparatives."

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