Weekend Herald

Recruiters ready for a rebound

- Lex Comment ● Lex is a premium daily commentary service from the Financial Times.

It is a sign of confidence when recruiters bump up their own headcount. UK-based Hays is doing just that, reckoning on adding 1000 staff next year. That is the same number as the recruitmen­t agency cut in 2020. Include recent hires and Hays will be close to its 2018 peak payroll of about 8000.

Recruitmen­t is a cyclical business due for an upturn. Jobs are rising at a macro level: June increases in both the US and the UK beat expectatio­ns. The hospitalit­y trade is rapidly ramping up. Government stimulus has unleashed a frenzy of infrastruc­ture building.

Agencies tasked with filling these roles operate on a simple geared model. Revenue flows from jobs filled. Hays, for example, takes a fee equal to 20 per cent of the first year’s salary for permanent roles. Their own staff account for about three-quarters of costs. Hays now expects an operating profit of £95 million ($188m), ahead of April’s guidance of £85m.

The increased headcount, the bulk of a proposed £20m spend next year, will dent income. But more incrementa­l business should mostly flow to the bottom line. Risks to the cost base include rising entertainm­ent and travel, expenses in effect erased by the pandemic.

Hays tapped markets for £200m last July and boasts a resilient balance sheet. Recruitmen­t is a cashgenera­tive business and investors can expect to see a decent dividend income stream. It expects to pay out an annual £150m for the next three years, implying a current dividend yield of 5.6 per cent.

Headhunter­s, like estate agents, have bullishnes­s running in their blood. Hays is tracking for a far faster recovery to peak profitabil­ity than it has previously seen. It expects three to four years compared with 10 after the financial crisis.

Sell-side analysts gave Hays a thumbs-up, raising estimates for this year and next. But investors marked shares down 5 per cent in morning trading. They have a point: UK peers PageGroup and Robert Walters offer cheaper access to the same job recovery.

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