Bottom Line: Pointers to continued Hays Group growth

HAVING convinced itself by the end of the day that a reference from Hays Group to a lower rate of profits increase in the second half was not a profits warning, the market should now be able to look forward to a year of relatively good news from the company.

A repeat of the hectic 33 per cent growth in interim pre-tax profits is implausible for the second six months because of the strong comparative figure. But this does not mean that previous estimates of pounds 85m or so for the year to June look threatened.

Hays has two points especially in its favour for the future. Despite a shaky outlook for Continental European economies it is becoming apparent that the management's ventures into French and German distribution, with the pounds 75m acquisitions of Fril and Mordhurst respectively, are showing all the signs of paying off handsomely. And the accompanying earn-outs have ceilings.

Another plus point is that 20 per cent of distribution turnover and anything up to 15 per cent of group sales have yet to show any reaction to the upturn in the economy because of their connection to the consumer.

A few million pounds of potential future profit are also locked into chemical distribution because of currently depressed prices for caustic soda, which cost the company pounds 1m in its half-year figures.

Mordhurst accounted for much of the 34 per cent increase in distribution operating profits to pounds 23.4m during the first half together with new UK contracts.

Personnel trebled its profits to pounds 6.4m after a strong performance in Australia, a halving of staff from peak levels, and the first real upturn in demand for temps - and, more important, permanent banking and accountancy staff - since the recession began.

In commercial work a 25 per cent advance at Britdoc helped to offset the hiatus in archive security, which is switching over from space management to computerised access.

The prospect of a steady 15 per cent growth in dividends and strong underlying cash flows mean a yield of 2.5 per cent and a p/e of 22 at 309p are fair value, suggesting recent outperformance could continue.