Hays PLC (LON:HAS) was upgraded to ‘buy’ from ‘neutral’ by UBS as analysts believe the recruiter is entering a new cycle and its professional contractor exposure can continue to see positive momentum.
The FTSE 250 has underperformed the European Staffing sector by over 15% through 2020 and remains well below its pre-COVID levels, so the investment bank sees an attractive risk/reward, considering earnings momentum has troughed while valuation can re-rate further.
READ: Hays fees fall but less than in previous quarter
Analysts raised the target price to 180p from 120p as the growth outlook moves away from lows, in line with the wider sector.
Hays' recent trading update showed that momentum remained positive into the end of 2020 and while unemployment and debt levels suggest challenges remain, UBS’s analysis of sector cycles suggests the professional contractor segment can still accelerate, benefiting from both a need to catch up on project work, and a desire for flexibility.
Conditions remain volatile, so the stock could swing to 110p in the downside scenario amid haltingly lifted restrictions and economic scarring, or 225p on the opposite end should economic reopening happen swiftly and pent-up demand be carried forward successfully.
In this upside scenario, a recovering perm cycle would add to strong contractor growth and drive Hays' net fees to new highs.
“We now believe its mix of exposures should support the greatest acceleration over the next year, while stabilising markets would also allow the resumption of dividends,” analysts commented.
Shares shed 2% to 143.3p on Monday morning, down 14% from last February’s levels.