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Hays (LSE:HAS), the FTSE 250 recruitment agency, is one UK stock that acts as a barometer for the health of the international labour market.
Therefore, unsurprisingly, it was badly affected by the pandemic. However, once lockdown restrictions were eased and employers started hiring again, things started to improve. During the year ended 30 June 2022 (FY22), year-on-year revenue increased 29.5%. And basic earnings per share grew 151%.
But as post-Covid inflation started to soar and interest rates across the world were hiked, business confidence began to drop once more.
More recently — since June 2024 — the Hays share price has tumbled 31%. The October 2024 budget, which increased employer’s National Insurance – and the National Living Wage — has led to a sharp drop in hiring both in the temporary and permanent markets.
To compound matters for the group, the uncertainty surrounding US tariffs and the possible impact on the global economy has also affected confidence.
FY25 pre-exceptional operating profit is expected to be around £45m. This is lower than the £56.4m analysts were forecasting. During FY24, it was £105.1m. The short-term outlook’s also gloomy. The company’s most recent trading updated warned that “we expect current challenging market conditions to persist into FY26”.
Light at the end of the tunnel?
Despite recent overseas expansion, the UK and Ireland remains the group’s biggest market. Here, domestic unemployment’s currently 4.6%. The Office for Budget Responsibility’s forecasting this will drop to 4.3% by the end of 2026, and to 4.1% by the last quarter of 2027. This offers some hope for the recruitment sector although it must be said that economic forecasting is notoriously difficult.
But Hays is optimistic. The company talks of “when” the labour market will recover rather than ‘if’. Indeed, history tells us that unemployment is cyclical in nature and that the jobs market experiences peaks and troughs like all others.
And in my opinion, Hays looks well positioned to benefit should events take a turn for the better. It operates in 33 countries and covers a variety of professions, client sizes and job types. It has over 56 years of experience and has successfully navigated worse downturns before.
An uncertain future
But it’s unclear to me how it will cope with the challenge of artificial intelligence (AI). McKinsey & Associates reckons 30% of US jobs could be automated by 2030. Goldman Sachs estimates that half of American roles won’t require humans by 2045. It could be a similar story in the UK.
Scaremongering, perhaps, but there’s a lot of evidence to support Amara’s law, which states: “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run”.
There’s also uncertainty over the future direction of the UK economy. Interest rates aren’t falling as quickly as most had predicted and the next budget could see further tax increases.
Based on amounts paid over the past 12 months, the stock’s currently (25 June) yielding an above-average 4.5%. But I wouldn’t be surprised if the group’s final payout for FY25 was cut when its final results are announced in August.
And while I don’t think AI’s much of a threat just yet, it’s definitely looming on the horizon.
For these reasons, taking a stake in Hays would be too risky for me.
