UBS downgrades Hays on valuation

UBS downgraded Hays to ‘neutral’ from ‘buy’ saying the risk/reward is now more balanced, but lifted the price target to 140p from 130p as it upped estimates slightly due to FX.

The bank pointed out that the good news has now passed, saying UK macroeconomic data has rebounded, concerns over contagion have faded, and Hays has re-rated from a low.

UBS said Hays’ first-quarter trading update on 18 November will be key. It noted that July and August are quiet months, so the trend in September is a better indication.

“We expect group like-for-like growth of around 2% (including UK -12%) after Q4 +8%, but for tougher comps and UK deterioration to impact thereafter.

“However we continue to see upside risk to consensus (particularly with the continued GBP weakening): we are around 4% ahead of the consensus mid-point on EBITA, but 15% above the lower end.”

In addition, UBS pointed out that Hays' special cash return policy sees the shares yielding more than 5% even in tough markets.