The stock market crash has created plenty of investment traps that share pickers are falling into. Hays (LSE: HAS) is one that I think comes into this category. The recruitment giantâs share price has attracted some healthy dip buying after its plunge to three-year lows in March. But the FTSE 250 firmâs much too risky in my opinion given the scale of the storm approaching the UK jobs market.
Itâs a worry that latest research from Manpower this week has exacerbated. According to the recruiterâs latest Employment Outlook Survey, employers’ hiring intentions for the third quarter of 2020 have slumped to -12%. This is the worst result since records began in the early 1990s, the survey showing declines in all major sectors.
On a brighter note, the majority (57%) of respondents to Manpowerâs study said that they expect hiring conditions âto return to pre-Covid-19 hiring levels by this time next year.â Itâs not a view Iâm prepared to share given the storm coming the UKâs way, not just due to the coronavirus crisis but because of the growing threat of a no-deal Brexit at the end of 2020.
A FTSE 250 share under pressure
The view isnât miserable for all of Londonâs listed recruiters. I recently shared why I think SThreeâs focus on niche labour markets could help it weather the storm. But this isnât something that Hays can rely upon. Its net is slung much far and wide and this makes it much more exposed to the broader fortunes of the domestic economy.
The scale of FTSE 250 company Haysâ troubles was illustrated in early Aprilâs market update for quarter one. Then it warned that it had seen âa very material deceleration in client and candidate activityâ and as a consequence, that operating profit for the fiscal year to June 2020 would be âmaterially belowâ  broker expectations of ÂŁ190m. Profits for financial 2019 came in at shade below ÂŁ250m.
Clearly investors need to be wary of significant problems in the upcoming financial year too. During the financial crash of 2008/09, net fees at Hays slumped 40% from peak to trough over a nine-month period. But the economic fallout of the coronavirus saga threatens to be much, much worse. The Bank of England has predicted the sort of downturn not seen since the early 1700s!
Better buys out there?
Okay, Haysâ broad geographic footprint means that it sources less than a quarter of net fees from these shores. But conditions threaten to be difficult in its other territories too. As I commented with SThree, I am extremely nervous over the outlook for the German labour market too. This is Haysâ single largest market and it accounts for 27% of fees.
Hays investors also need to be concerned about its reliance on a strong market for permanent vacancies. It generates 43% of its business from roles of this type versus 57% for temporary positions. These roles are of course the first to dry up when economic conditions slump
All things considered, the recruiter is packed with too much risk for my liking. Iâd happily avoid this battered FTSE 250 firm and invest my cash elsewhere.