HSBC downgrades Hays, points to slowing UK growth

HSBC downgraded Hays to ‘hold’ from ‘buy’ and cut its price target to 140p from 200p.

It said Hays’ UK growth is slowing, as evidenced by the company’s second-quarter trading update, and the bank’s bull case was premised on accelerating growth and margin recovery.

“Until we get further evidence that such growth can pick up, we are unable to have conviction in our ‘buy’ case,” the bank said.

HSBC said the slowdown is worse than what the labour market data implies or sector peers, raising the question that this might be a company-specific problem.

“If this is a result of the company's inability to fill vacancies as the candidate scarcity emerges, the downside to our estimates and the multiples the market is willing to pay can be meaningful,” it said.

HSBC said downside risks include a focus on large accounts which may limit the company's ability to increase prices in future. In such a scenario, if the company cannot have a pull on the candidate pool, risk to profit growth can be meaningful, it said.

Upside risks, however, would be that Hays’ UK slowdown is a temporary phasing effect post elections.

At 1104 BST, Hays shares were up 0.9% at 137.90p.