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Credit Suisse cuts Hays rating on demand fears
25th Nov 2019 09:35
(Sharecast News) - Credit Suisse has downgraded shares of Hays, citing looming threats to organic growth in some of the recruiter's core markets.
The bank downgraded its rating to 'underperform' from 'neutral', though it left the price target unchanged at 140p.
It also reduced earnings estimates, with earnings per share falling 4-7% for the full-years 2020-2022, and forecasts for earnings before interest, taxation and amortisation now 2-4.5% below company-compiled consensus.
Analyst Andrew Grobler said: "Our Credit Suisse lead indicator continues to incrementally decline and we expect organic growth to weaken further through the second quarter as macro headwinds in the UK, China and Germany impact demand."
Last month, shares in Hays jumped after the recruiter said strong growth in net fees in the US and China had helped offset other, slowing markets in the first quarter.
But Grobler said: "While Hays reported more resilient growth rates in the first quarter than peers PageGroup and Robert Walters, we think that, to a large extent, this reflects different revenue recognition protocols, with Hays recognising revenues when the candidate starts, while Page recognises revenue when the contract is agreed. This leads to a lag in performance for Hays on major shifts in demand.
"In addition to our short-term caution, we continue to see incremental pressure on agency profitability as technology enables major corporate to either bypass agencies, reduces a number of roles previously filled by temps/contractors or encourages downward pressure on pricing."
Hays is scheduled to update on second-quarter trading on 16 January.
Shares in the FTSE 250 company were trading 1% higher at 167.0p by 1300 GMT.
The bank downgraded its rating to 'underperform' from 'neutral', though it left the price target unchanged at 140p.
It also reduced earnings estimates, with earnings per share falling 4-7% for the full-years 2020-2022, and forecasts for earnings before interest, taxation and amortisation now 2-4.5% below company-compiled consensus.
Analyst Andrew Grobler said: "Our Credit Suisse lead indicator continues to incrementally decline and we expect organic growth to weaken further through the second quarter as macro headwinds in the UK, China and Germany impact demand."
Last month, shares in Hays jumped after the recruiter said strong growth in net fees in the US and China had helped offset other, slowing markets in the first quarter.
But Grobler said: "While Hays reported more resilient growth rates in the first quarter than peers PageGroup and Robert Walters, we think that, to a large extent, this reflects different revenue recognition protocols, with Hays recognising revenues when the candidate starts, while Page recognises revenue when the contract is agreed. This leads to a lag in performance for Hays on major shifts in demand.
"In addition to our short-term caution, we continue to see incremental pressure on agency profitability as technology enables major corporate to either bypass agencies, reduces a number of roles previously filled by temps/contractors or encourages downward pressure on pricing."
Hays is scheduled to update on second-quarter trading on 16 January.
Shares in the FTSE 250 company were trading 1% higher at 167.0p by 1300 GMT.