Hays gets a boost from HSBC upgrade

15th Feb 2016 08:45

(ShareCast News) - Hays got a boost on Monday after HSBC upgraded the stock to 'buy' from 'hold' and lifted the price target to 155p from 140p as it took a look at the UK staffing sector.The bank noted Hays trades at a CY16 price-to-earnings ratio of around 13x and EV/EBITDA multiple of around 8x on both its and consensus estimates.HSBC lifted its target price on the stock applying average 12-month forward price-to-earnings multiples over the past three years and cross-checking these with an adjusted present value methodology and other multiples.It said the new target price implies 34% upside from the current price, hence the upgrade.More generally, the bank said a slowing in sales growth in the UK labour market in the fourth quarter, on top of broader fears of an economic slowdown around the world, has left investors nervous of the UK staffers."Labour markets in the UK were beginning to exhibit the late-cycle characteristics of more growth in white collar, more growth in higher wage and more growth from SMEs. This period has historically lasted over two years."If we return to these trends, all of which would bode well for SThree, Hays and Michael Page, hopes of the companies delivering a march towards the historical levels of profitability will likely galvanise the share prices."However, HSBC pointed out that rising labour costs due to factors such as the minimum wage and apprenticeship levy, seem to be making UK hiring firms hesitate before hiring."Given we are entering a period of uncertainty around Brexit, this may last through the first half of 2016. We therefore see less growth in precisely the names we would favour for the latter part of the labour cycle."The bank cut its price target on buy-rated Michael Page to 510p from 610p, keeping SThree at 'buy' with a 405p target.It said a better geographic, sector and product mix places Michael Page in a better position compared with Hays.At 0855 GMT, Hays shares were up 5% to 123.20p.