Hays delivering the goods in France

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The Independent Online
HAYS, the business services group run by Ronnie Frost, continued its strategy of adding small, bolt-on acquisitions to its portfolio yesterday with the pounds 19.5m purchase of France Partner, a leading player in the express parcel delivery sector.

The deal comes after a similar one secured last month when Hays paid pounds 40m for Colirail, which has 10 per cent of the next-day delivery market in France and occupies a strong niche position in the insurance market.

Combining the two businesses will lead to economies of scale, says Mr Frost, and will give Hays around 20 per cent of the next-day delivery market.

France Partners made profits of pounds 1.2m last year on sales of pounds 29.5m, but Hays estimates that it can improve the company's margins from 4 per cent to between 8 and 10 per cent.

The deal adds to the flurry of acquisitions undertaken by Hays in the past few months. In addition to the Colirail and France Partner purchases, Hays also paid pounds 40m for Axis Resources, a specialist in pay-roll systems, in December, and in October it picked up Sitinfo, a French computer staff operation.

The acquisitions are part of the group's strategy to expand on three fronts: distribution, which provides distribution services for retailers such as Waitrose, Tesco and M&S; commercial, which operates document delivery services for the legal sector and others; and personnel, focusing particularly on the professions such as accountancy.

This three-legged structure has served Hays well. The company has surged into the FTSE 100 and is now valued at pounds 4.2bn.

However, the shares are off their 566p peak of last April, with critics worried about the group's cyclical exposure. This explains the stock's discount to rivals such as Rentokil Initial.

Mr Frost admits that the personnel division is seeing signs of a slowdown: growth is now thought to be in the mid-teens against last year's 30 to 40 per cent growth. But he maintains that there are still no signs of recession. The plan is to continue seeking smaller deals, particularly on the Continent, which now accounts for half the group's business.

According to Charles Pick at Panmure Gordon, yesterday's acquisition is likely to leave Hays with rationalisation costs in the first two years before making a contribution in year three.

But on Panmure's full-year forecast of pounds 233m, the shares - up 3.75p to 496.5p yesterday - trade on a forward multiple of 25. This is a premium to the market, but the discount to Rentokil combined with Hays' impressive record has led Panmure to suggest a 12-month target price of 580p.

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