UBS downgrades Hays to “neutral” as hiring slowdown deepens

UBS Global Research downgraded Hays to "neutral" from "buy," lowering its price target to 70p from 100p due to a prolonged hiring downturn and profit pressures. The downgrade follows Hays' profit warning, citing weak job flow, aligning with broader industry data indicating a staffing market downturn. UBS cut net fee forecasts by 2% to 14% and adjusted EPS by 28% to 49% through fiscal years 2025-2027, projecting a significantly reduced adjusted EBIT and potential dividend policy reset, while acknowledging long-term earnings potential, macroeconomic uncertainty skews risks to the downside in the near term.

Analysis

UBS Global Research has downgraded Hays to "neutral" from "buy," concurrently reducing its 12-month price target from 100p to 70p, primarily due to an extended downturn in hiring activity and persistent pressure on profits. This reevaluation follows an unscheduled profit warning from Hays, which reported weaker-than-anticipated job flow for the April to June 2025 period, a sentiment corroborated by broader industry data indicating a slowdown across staffing markets and decelerating job listings. UBS has materially revised its financial projections for Hays, cutting net fee forecasts by 2% to 14% for fiscal years 2025 through 2027, and slashing adjusted earnings per share (EPS) estimates by 28% to 49% over the same period. Consequently, adjusted EBIT for FY25 is now projected at a significantly lower £45.1 million, compared to £105.1 million in FY24 and £210 million in FY22. The brokerage anticipates Hays’ group conversion margin to remain depressed at approximately 5% through FY26, a level not witnessed in over two decades. A dividend policy reset is also expected, with UBS forecasting an FY26 dividend of 0.66p per share, a substantial reduction from the recent 3.00p per share dividend, which is now deemed significantly uncovered. Valuation metrics have been adjusted downwards, with UBS lowering its target EV/gross profit multiple to 1.2x from 1.5x. While a downside scenario could see the share price fall to 40p (a 37% decrease) and an upside case suggests a potential recovery to 120p (a 90% increase), UBS concludes that near-term risks are skewed to the downside due to prevailing macroeconomic uncertainty and declining volumes, even as Hays trades at a 1.2x EV/GP multiple, which is at the lower end of its historical range. Although UBS acknowledges a long-term adjusted EBIT potential of £300 million during a full market recovery, current visibility is considered too poor to justify a more optimistic short-term outlook.

Key Decisions for Investors

• Investors should exercise caution regarding Hays, reflecting the significant near-term headwinds from the prolonged hiring downturn and substantial cuts to earnings and dividend forecasts.
• Consider monitoring key macroeconomic indicators and Hays' subsequent trading updates for signs of inflection in hiring volumes before initiating or increasing positions, despite the current valuation being at the low end of its historical range.
• Given the anticipated dividend reset and challenging profit outlook, income-focused investors may need to re-evaluate their positions in Hays and consider the reduced yield potential.