HAS: Labor Market Recovery Will Drive Upside Following Recent Buyback Plan

Key Takeaways

• Refocusing on high-demand sectors and expanding temp and enterprise services enhances revenue resilience, earnings stability, and opportunities for recurring income.
  
• Ongoing tech investment, digital transformation, and accelerated cost-saving measures increase efficiency, de-risk the balance sheet, and enable future profitability and shareholder returns.
  
• Prolonged structural declines, external pressures, rising technology costs, reliance on restructuring, and digital disruption collectively threaten sustained profitability and the long-term viability of the traditional business model.

Catalysts

About Hays

Engages in the provision of recruitment services in Australia, New Zealand, Germany, the United Kingdom, Ireland, and internationally.

What are the underlying business or industry changes driving this perspective?

• Hays is strategically increasing exposure to high-demand job categories-such as STEM, technology, and specialist contracting roles-by reallocating resources and focusing on geographic and sector diversification. This positions the company to capture future growth from ongoing skills shortages in critical sectors, potentially boosting long-term net fee income and improving revenue resilience.
  
• Ongoing investment in digital transformation, proprietary recruitment technology, and multi-year data and AI programs is expected to drive sustained improvements in consultant productivity and back-office efficiency, enabling higher net margins and improved operating leverage as markets recover.
  
• The group's shift towards a higher proportion of Temp & Contracting and enterprise clients-as reflected in increasing contribution to group net fees and robust growth in Enterprise Solutions-makes earnings more stable and predictable, smoothing cyclical swings and supporting higher-quality, recurring revenues.
  
• Structural cost-saving initiatives, which are being accelerated and increasingly front-loaded, are set to reduce the company's fixed cost base by £80 million annually by FY '29, enabling stronger profit drop-through when volumes normalize and directly improving future operating profit margins.
  
• Completion of the pension buy-in, rebasing of the dividend, and ongoing working capital optimization have materially de-risked the balance sheet and will free up substantial cash flow (e.g., removal of £18 million annual pension contributions), supporting future investments, capital returns, and potential upside to shareholder value.

Hays Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Hays's revenue will grow by 1.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.9% today to 1.2% in 3 years time.
• Analysts expect earnings to reach £78.1 million (and earnings per share of £0.06) by about August 2029, up from -£58.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting £108.2 million in earnings, and the most bearish expecting £44.3 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 14.8x on those 2029 earnings, up from -19.5x today. This future PE is lower than the current PE for the GB Professional Services industry at 19.1x.
• Analysts expect the number of shares outstanding to grow by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.23%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Structural reduction in Perm recruitment volumes and continued lengthening of time-to-hire, coupled with 25% fewer placements, signals a potentially secular decline in higher-margin business lines, which could structurally undermine revenue and limit recovery in group earnings.
  
• Persistent economic and political uncertainty in key markets (such as the UK, Germany, and France), with recurring operating losses in major regions and exposure to junior Perm and auto sectors, indicate that external cyclical pressures and sector-specific risks may cause prolonged margin compression and earnings volatility.
  
• Increasing capital expenditure commitments to technology, data, and AI, while necessary, will drive up depreciation and potentially suppress near-term profit growth; moreover, foundational investments are set to continue for multiple years with uncertain ROI, which could pressure cash flow and limit dividend growth.
  
• High ongoing restructuring charges and cost reduction programs-while improving efficiency-signal a reliance on exceptional items to support profitability; front-loaded restructuring cash costs and further office closures may erode short-term free cash flow and delay a return to sustainable net margin expansion.
  
• Intensifying market disruption from digital transformation, remote work normalization, gig platform alternatives, and client adoption of direct-placement and AI-driven hiring solutions threatens the traditional agency model, risking disintermediation and declining long-term fee income, thus directly impacting revenue and future earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of £0.57 for Hays based on their expectations of its future earnings growth, profit margins and other risk factors.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £0.85, and the most bearish reporting a price target of just £0.28.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be £6.7 billion, earnings will come to £78.1 million, and it would be trading on a PE ratio of 14.8x, assuming you use a discount rate of 8.2%.
• Given the current share price of £0.72, the analyst price target of £0.57 is 26.6% lower. Despite analysts expecting the underlying business to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.