The Investment Column: Hays benefits from winning formula in niche markets

Another set of sparkling figures from Hays yesterday will have some Christian Salvesen shareholders ruing the sentimental attachment of that company's controlling family to its independence. In a difficult logistics market that has claimed its fair share of scalps in recent years, Hays clearly has a winning formula.

Profits in the 12 months to June were up an impressive 20 per cent to pounds 132m, in line with expectations and leading to a similar rise in earnings per share to 8.1p and a useful 16 per cent dividend hike to 8.1p. Rather churlishly, the shares shed a couple of pence on confirmation of the good result to close at 479p.

Part of Hays' strength lies in its leading position in attractive niches of the distribution market, which for many of its peers has become uncomfortably competitive since the fat-margin days of the 1980s ended for good in the last recession.

Hays also benefits from three distinct areas of operations which smooths the ups and downs in any one. Some observers view Hays' rather heavy dependence on personnel and recruitment business as a minus, but with strong brand names such as Accountancy Personnel it is well placed to ride out the cycle.

In the distribution core which accounts for more than half of sales and almost half of profits, there was an expected slowdown after record levels last year in the UK and Europe. Again a strong position in the chemical distribution niche helped.

Commercial work, everything from express document delivery for lawyers to motor parts distribution, saw profits up 19 per cent. This business has enviable operating margins of more than 30 per cent which helped the company as a whole raise pounds 55m of free cash flow and meant interest payments were covered a comfortable 20 times.

With analysts happy to leave their forecasts unchanged for the current year at about pounds 150m, everything seems set fair. Sadly, on a prospective price/earnings ratio of 19 it is in the price. Hold.