Keep Hays on hold while it looks so fully valued

Good news at Johnston Press; New boy Numis shows its class
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The Independent Online

At the start of this year, we posed the question: what is the point of Hays plc? At the time it was a sprawling collection of struggling businesses in haulage, warehousing, recruitment, document storage, and parcel deliveries. The group, assembled through a welter of acquisitions by the former chairman, Ronnie Frost, lacked focus and investor interest had waned.

At the start of this year, we posed the question: what is the point of Hays plc? At the time it was a sprawling collection of struggling businesses in haulage, warehousing, recruitment, document storage, and parcel deliveries. The group, assembled through a welter of acquisitions by the former chairman, Ronnie Frost, lacked focus and investor interest had waned.

Now, at the end of the year, it is a much-changed animal, and it yesterday earnt a place back in the FTSE 100. Colin Matthews, chief executive, audaciously hoisted the "for sale" sign over most of the operations and has confounded sceptics - including us - by raising more than predicted from the process. There are still odds and sods from the logistics division (German and US operations and some property) and the mail division left to go, but Hays is on its way to becoming the "specialist recruitment and human resources services" group Mr Matthews promised.

Is it any good? Well, it isn't all that specialist, to be honest, operating across many business sectors, but it does have lower costs than some competitors (its offices tend to be "above the chip shop rather than next to it", the company says). It is also less exposed to the economic cycle than some, because it is able to offer more "temps" than "perms" as demanded in leaner times.

As well as the prospect of big share buybacks, it is the assumption that we are headed into an economic upturn that has helped Hays shares shrug off the dilution to earnings of the logistics disposal. But while the rising economic tide lifts all boats, recruitment consultants working with high-earning financial personnel are likely to be lifted most dramatically. It is also difficult to justify the mid-20s multiple of earnings on which the market appears to be putting the Hays recruitment business. There is upside, it is true, in the mail business, and it is right that Hays should hang on to it for another year or so until the benefits of its new licence to deliver business-to-business post start to show in profits. But again it seems the upside is already reflected in the share price.

Hold.

Good news at Johnston Press

Green shoots No. 217: The trading update from Johnston Press, publisher of 247 local and regional newspapers, described yesterday how "recruitment advertising has witnessed improved growth levels" in the past six months.

There was also evidence of greater advertising spending by the UK's biggest companies while property advertising - while likely to slow - is still as buoyant as the housing market. In all, advertising income across the Johnston stable was up 4.9 per cent in the five months to 30 November - better than the company or its followers had expected.

Johnston's acquisition last year of RIM, the owner of the Yorkshire Post,continues to deliver the goods, with the new management driving improved revenue gains and set to squeeze more cost savings even after the official target of £10m is met this year.

Regional newspapers have proved a safe port in the advertising downturn and won't therefore show the dramatic growth that more beleaguered media groups may manage in an economic recovery.

But Johnston is well run and is showing early signs of success in trying to stem the circulation declines in daily local papers. The erosion of the 9-to-5 culture means newspaper buying is less of a habit than ever, but papers such as the Blackpool Gazette have shown that snazzy new supplements can attract readers back.

On 14 times next year's conservative earnings forecasts, Johnston shares, at 467.25p, are still worth holding.

New boy Numis shows its class

Numis Corporation, the stockbroker, wants to shed its image as the small new boy in the City and be taken seriously as a broad-based, high-quality broking and corporate finance establishment.

Born in 2000 out of Raphael Zorn Helmsley, it began specialising in the insurance sector, and expanded to research 350 companies across 15 sectors. Turnover was up 38 per cent and profits up 54 per cent over the past year, despite the meltdown in stock markets. Numis more than doubled its corporate clients to 60, mainly in the mid-cap arena.

As larger investment banks axed staff, Numis picked up high-ranking analysts and bankers who brought clients with them. Michael Spencer, who runs the broker ICAP, has recently become chairman, lending Numis another big-hitting reputation.

Directors and employees own 60 per cent of the company, making for a highly incentivised workforce. Its 80 employees enjoyed £4.35m in bonuses this year.

Numis shares are not well followed in the City, but they have rightly soared this year. At 547.5p, they trade at only 13 times earnings for the year just reported. This makes them cheap at a time when stock markets are improving. Now is still a good time to get in.

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