Friday tips round-up: RBS, Hays

11th Apr 2014 07:20

Some analysts are wondering whether the agreement reached by RBS with the government so as to be able to resume dividends will actually bring forward the date of shareholder payments. The Times' Tempus is not so sure. In essence, the bank needs to rebuild its capital reserves - so as to receive regulatory approval to resume pay-outs - while at the same time generating sufficient funds to pay the government for its dividend access share. For that to happen, it must return to profitability and pull off the flotation of its US subsidiary, Citizens. A return to profitability should be achieved by 2016, barring any more horrible surprises. As regards the flotation of Citizens, RBS just recently failed a key hurdle set by the US Federal Reserve, although that need not be a deal breaker. Thus, there are more hurdles to jump before the lender can resume its dividends. However, it is still the most exposed to any upturn in the UK economy, Tempus writes. Recruiters tend to recover with the economy, so Hays ought to do well given that the UK is now expected to be the fastest growing country in the G7 over the coming year. Indeed, net fee income, its take from placing people in temporary positions, accelerated to 14% during the third quarter, from the 9% pace seen over the first half. In parallel, permanent placements rose by 25% in like-for-like terms. The company is also seeing signs of stabilisation in Australia. That follows a notable drop in the Australian dollar, its main market in the Asia Pacific region, which sent its net fee income plummeting by 21% once translated back into sterling. Tantalizingly, the firm sees full-year operating profits coming in towards £141m this year. That happens to be just above the level at which Hays has said in the past that the board will look into the possibility of increased payments. The German market is also performing nicely. Nonetheless, the stock has a tendency to overreact. At 25 times' forward earnings, falling to about 20 times next year, that looks high enough for now given that the recovery continues to be fragile. Hold, says The Daily Telegraph's Questor column. Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.AB