Global recruitment firm Hays (HAS) is one of those rare stocks which offers something for all types of investor.

For growth fans, the company is consistently delivering double-digit increases in net fee income and smashing country records quarter after quarter.

For income investors, it is paying out a growing stream of surplus cash in the form of special dividends and buybacks, despite continuing to invest heavily in future growth.

Yet the price for all this is just 13 times this year’s consensus earnings forecast of 9.6p per share, which will no doubt increase after the firm beat estimates with its fourth quarter growth, creating appeal for value investors into the bargain.

GROWTH POTENTIAL

Hays has always used its prodigious short-term cash flow to invest in long-term growth opportunities, not just in terms of new markets but in terms of its people, its technology and its brand.

The firm now offers recruitment services across 20 sectors in more than 30 countries worldwide and is expected to generate in the region of £1.25 billion in net fees this year, before upgrades.

That is still only a third of the net fees generated last year by Swiss rival Adecco (ADEN:SWX) and Dutch firm Randstad (RAND:AMS), but Hays has an aggressive five-year growth plan which it outlined at its investor day in April.

One of its aims is to double net fee income from its ‘enterprise client’ business, which is those firms who outsource their temporary and permanent white-collar recruitment to Hays, from £300 million to £600 million annually.

Of the group’s 400 top clients, who all spend over £250,000 annually, so far only 150 are ‘enterprise clients’.

Below the top 400, there are another 800 clients who spend between £100,000 and £250,000 annually, meaning there are over 1,000 firms representing ‘major upsell opportunities’ just among current clients.

The market for outsourced staffing is around $200 billion per year and according to Everest Group & Staffing Industry Analysts is growing at twice the rate of the wider $600 billion per year staffing market.

As clients face an increasing battle to recruit and retain quality staff, which is leading to rapid wage inflation, the pressure to hand the reins to an outside expert is only going to continue growing.

Clients who outsource their recruitment tend to need additional HR (human resources) services from their providers such as coaching, development and assessment and re-skilling.

TECHNOLOGY FOCUS

Another big plank of Hays’ growth strategy is to take net fees in the technology space from £300 million to £500 million by 2027.

The global technology staffing market has grown four times faster than the broader jobs market over the last 20 years, and over the last decade Hays has consistently grown its fees from the sector by more than the market.

Looking ahead, between 2022 and 2027 the number of global technology jobs is expected to rise more than 20% from 62 million to 75.5 million, according to company estimates.

The group’s strongest disciplines at the moment are project and change management, devops (development and operations) and cloud, and software development, but it plans to expand its core competence into data and analytics, cloud development and cyber services.

The firm’s US cyber security recruitment arm already accounts for more than half of its cyber fees, and revenues are growing exponentially.

Demand for cyber staff worldwide is close to seven million people, whereas the current available workforce is only 4.2 million people, meaning there is a persistent deficit of talent, leading to higher wages and therefore higher fees.

The total global spend on cyber staff is expected to grow by close to 15% per year between now and 2027 to reach $300 billion according to the firm’s research.

IMPROVING RETURNS

Net fee income for the final quarter to the end of June grew by 23% against analyst estimates ranging from 15% to 22%, with 15 countries setting new all-time fee records.

As a result, the firm raised its guidance for full year operating earnings to £210 million, at the top end of its previous range of expectations.

Fees and activity were ‘stable at high levels through the quarter, driven by good client and candidate confidence’ said chief executive Alistair Cox.

‘While macroeconomic uncertainties are increasing, we have a clear strategy and our key markets continue to be characterised by skill shortages’, said Cox, adding ‘fee growth is also supported by improved margins and wage inflation globally.’

Faster fee growth and higher margins means more money to hand back to shareholders, with the firm sitting on close to £300 million of cash at the end of June despite buying back £18 million of its shares.

The firm has promised to return ‘significant cash’ to investors over and above its £100 million cash buffer and any unused cash from its buyback programme.

By our calculations, that means Hays could be on track to distribute up to £138 million or 8.4p per share in special dividends this year based on the most recent share count.

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