RBC still sees significant upside at Hays despite Q2 weakness

Hays on 9 January reported "increasingly challenging" trading conditions in its fiscal second quarter with group net fees down 12% year-on-year, falling 10% on a like-for-like basis.

"We lower our EPS estimates for FY24 and FY25 by ~22% and ~15% respectively, to reflect the deterioration in the trading environment across most key geographies through Q4, with a distinct drop off in activity in December, leading to materially adverse operating leverage," RBC said in a research note.

As such, the price target has been reduced from 165p to 155p to reflect the cuts to near-term earnings, but this still represents "significant upside potential" from Thursday's closing price of 99.6p.

"Return to work dynamics in the coming weeks will be key in determining whether the industry has experienced an over-sized seasonal pause for breath, or a more sustained deterioration in confidence," the broker said.

Nevertheless, RBC said Hays' enterprise value-to-net fee ratio remains "depressed". The broker said: "We believe Hays and its specialist peers look attractive versus history on the EV/net fees metric in particular. History has shown these stocks tend to move early and typically outperform into the teeth of the worst macro sentiment. Despite current uncertainties, we see favourable risk-reward at Hays in the context of the broader sector."