Recruiters ready for a rebound

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.