The Investment Column: Hays holds its own in a shrinking economy

Thomas Cook Group; Hardy Oil and Gas
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The Independent Online

Our view: Cautious hold

Share price: 108.5p (+1.25p)

Whichever way you cut it, an economic downturn is bad for recruiters. Quite simply, businesses that struggle will not hire people, which will mean fewer candidates being placed by Hays and its competitors.

However, don't rush out to offload Hays, which put out a bullish trading statement yesterday, just yet. The group operates at the lower end of the recruitment sector, placing those earning salaries of between £15,000 and £50,000 a year. That part of the market is holding up fairly well, says the company, and the area of the jobs market under most pressure at the moment, investment banking, accounts for just 11 per cent of the group's business.

There are other, "defensive qualities," in the company, too, argues finance director Paul Venables. He reckons that the international part of the business is growing at a rapid rate and now makes up 40 per cent of the group's activities, from 5 per cent 8 years ago. This is good news he says, because speciality recruiters, such as Hays run just 20 per cent of the European market, with corporate human resources departments only slowly outsourcing the responsibility.

As the economy gets a bit hairy, employers are seeking to hire an increasing number of people on a temporary basis. Hays spends half its time placing these folk, and then benefits from the return business when the employer lays them off a few weeks later. All that is good, but a shrinking economy means fewer jobs, full stop, and by Mr Venables' own admission, the group is not a short-term bet. Indeed not, with the company's share price languishing near its 12-month low.

It would be folly to buy Hays' stock today; the share price probably has further to fall and most reckon the economy will get worse before it gets better. However, given the multitude of pies in which Hays has fingers, it is worth keeping an eye on. Cautious hold.

Thomas Cook Group

Our view: Hold

Share price: 298.75p (-8.25p)

Very soon we will all be going on our summer holidays and there is a high chance that we will be doing that with Thomas Cook, which is now the second-biggest travel operator in Europe. The question that investors would want answering is are they being taken for a ride?

There are obvious problems facing the group that are not of their own doing. Firstly, if consumers are worried about losing their jobs, there is not much chance that they will be rushing to book a holiday, especially as sterling sinks against the euro.

The group's chief executive Manny Fontenla-Novoa reckons that holidays are the last thing that people skimp on and that they would rather spend less when they get to wherever they are going. He has research to prove it, too, he says. "The summer holiday is a must have," he says. For some people this year it may be a can't have.

Despite these problems the company, which put out a trading statement yesterday, is in good health. Demand for holidays is up, albeit on a reduced capacity and the group is hedging against a rising euro by offering more holidays in places such as Egypt and Turkey, where the cost the of the euro is less important.

The company is also expanding and is expecting to announce a deal with a Russian group soon that will allow it to tap that market. Mr Fontenla-Novoa says that the Russian market will offer the group great, "synergies".

Some of the analysts are sceptical. Those at Dresdner Kleinwort reckon that while bookings are good, prices may have to rise considerably to offset the increasing cost of fuel.

But JP Morgan says that yesterday's, "AGM statement [was] robust with a good performance having been delivered in the winter season and bookings for summer looking strong".

Investors will be interested to note that the company is buying back shares, which should convince anyone sitting on the fence. Hold.

Hardy Oil and Gas

Our view: Hold for now

Share price: 795p (-25p)

Given the price of oil, companies churning out the black stuff should be making money hand over fist.

But not all of them are. Hardy Oil and Gas reported an 18.6 per cent fall in full-year net-profits yesterday and for a company that has seen its shares fly in the last 12 months, investors may not consider the numbers to be good enough.

But the group, which primarily operates in India, has leapt ahead in the past few years; Hardy listed on AIM in 2005 with a market capitalisation of £75m and that has grown to more than £500m today, with a listing on the FTSE 250. The group says it has $32m in cash and has projects in the pipeline

The problems last year centred on one of the company's wells becoming unusable, which hit the final numbers. By finance director Dinesh Dattani's own admission the biggest risk to the company is its ability to execute projects successfully. If it can get that right and if the price of oil stays high, Hardy's will be a winning punt. Hold for now.

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