Hays winning three-legged race

Investment Column

The flotation of Hays, the business services group, may have been a flop six years ago, but shareholders, including 800 of the company's workers, have been well-rewarded since. The shares have more than tripled from the 105p float price, and the current market capitalisation of pounds 1.4bn puts it on the verge of the FT-SE 100-share index.

Hays' three-legged structure has proved remarkably resilient to recession and looks increasingly a winning combination. Its logistics division supplies warehouse and distribution services to supermarket groups and manufacturers. Commercial services include the Britdoc private postal business. The personnel division specialises in accountancy and legal recruitment under the Hays name.

These are hardly unique areas with minimal competition, but Hays has managed to make them work. Yesterday's results were further proof that the formula is succeeding. Pre-tax profits were up 26 per cent to pounds 110m, with the dividend increased by 15 per cent for the fifth consecutive year.

The distribution business, which accounts for almost half group sales, is performing particularly well at a time when rivals such as Tibbett & Britten and NFC have stumbled.

One reason is its relatively small exposure to the cut-throat food distribution sector in the UK, where prices are under intense pressure from supermarket groups. Instead of seeing margins dwindle every time a contract comes up for renewal, Hays has targeted customers who are contracting out their distribution for the first time. The margins are healthier and there is plenty of business to go for as 70 per cent of companies still handle their own distribution.

The group has also expanded sensibly in Europe, where the food distribution market is less mature. The Fril acquisition in France in 1992 was followed by the Mordhurst deal in Germany.

SBC Warburg is forecasting pre-tax profits of pounds 130m this year, which puts the shares, down 1p at 358p, on a forward rating of more than 16. A premium to the market, but Hays looks a long-term growth stock.

MAI keeps faith with finance

Investors hoping that MAI will soon be ready to drop financial services in favour of the sexy media sector will have drawn little encouragement from yesterday's strong endorsement of the broking operations by Lord Hollick, the company's managing director.

MAI is holding fast to its strategy of building up all three of its main operations: information services, specialist broking and money services, and media. And there is reason to believe that MAI may have the balance about right, as US financial services activities are likely to show a notable improvement in 1996. Even so, media will remain among the most attractive areas for expansion. With yesterday's results, media for the first time accounts for a larger share of revenue and profits than financial services.

Analysts expect earnings per share to hit 24p in the current year, rising to about 28p in fiscal 1997. That puts the stock on a current-year multiple of just over 12 times the current price of 298p, up 2p yesterday, well short of the sector average. Yet MAI has an above-average growth record, and is likely to see earnings rise by well above 15 per cent this year and next.

The market has yet to recognise just how cheap MAI shares are, and continues to make make too much of the company's non-media holdings.

Bryant adds to building gloom

Bryant Group has become the latest builder to warn that the summer downturn in the housing market will hit results this year. The problem will not have come as a surprise to the City, but the shares still fell 8p to 109p yesterday.

The extent of the difficulties at the West Midlands-based group may have wrong-footed observers. Bryant said completions have already sunk 5 per cent year-on-year in the first quarter to August, while reservations have slid a hefty 15 per cent. The effects of that will be magnified by a strong performance in the 12 months to May, as final results out yesterday testify. Pre-tax profits soared 25 per cent to pounds 45.8m, after completions leapt 15 per cent to 3,735 over the year.

From mid-June, the market fell off a cliff and the current six months is likely to see completions dip by up to 10 per cent year on year. Beyond that, Bryant is at the mercy of the Chancellor's interest rate policy and the possibility of pre-election tax bribes being on offer in November.

The company is doing all the right things to mitigate its plight, the diversion into property development has ended and gearing remains comfortable at 17 per cent. But profits of just pounds 31m suggest the shares are over-valued on a price-earnings ratio of 15.

COMPANY RESULTS

Turnover pounds P/Tax pounds EPS Dividend

Bryant Group (F) 519m (392m) 45.8m (36.5m) 11p (8.9p) 5.05p (5p)

Hays (F) 808m (632m) 110m (87.8m) 18.7p (14.7p) 7p (6.1p)

Intl Business Comm (I) 48.3m (38.4m) 6.4m (4.9m) 13.1p (10.1p) 3p (1.5p)

MAI (F) 813m (710m) 106m (87.9m) 20.1p (16.6p) 8.7p (7.8p)

Roxboro Group (I) 45.8m (26.2m) 8.2m (4.5m) 10.2p (8.1p) 2p (1.5p)

Sharpe & Fisher (I) 30.8m (31.1m) 1.65m (2.04m) 5.3p (6.6p) 1.7p (1.7p)

(Q) - Quarterly (F) - Final (I) - Interim