The Investment Column: Hays confident of rising profits

CAN Ronnie Frost do no wrong? Investors who backed the ebullient chairman of Hays, the business services group, at the time of its flotation in 1989 will have seen the value of their investment rise almost 10-fold. Even a failed tilt at Christian Salvesen, the troubled logistics group, has not stopped the rise.

Yesterday, Mr Frost was at it again, reporting pre-tax profits (before exceptionals) up 29 per cent at pounds 92.2m and saying he felt more confident than at any time since the flotation. In a falling market, the shares put on 8p to 943p.

It's hard to pick holes in Hays' performance. In distribution, the company's margins are better than its competitors' because it eschews cut-throat logistics deals in favour of first-time contracts. Late last year, Hays enjoyed a coup when it convinced BP and Shell to award it the contract to distribute non-petroleum products to their forecourts. Margins dropped to 9 per cent, but this was blamed on acquisitions, and returns should improve once they have been fully integrated.

Meanwhile, the commercial business produced 21 per cent growth while personnel turned in a sparkling 41 per cent increase in profits. Hays is pragmatic about moving into new business areas so, by invitation from its customers, it recently moved into IT personnel and has gone from supplying staff for a British Gas call centres to managing the whole show.

Future growth will be both organic and by acquisition. Hays has proved itself a shrewd predator in the past and it is hunting for small strategic deals on the Continent. The only question is how much of that is reflected in the share price. Broker Panmure Gordon forecasts full-year profits of pounds 194m, rising to pounds 222m, putting the shares at a 50 per cent premium to the rest of the market. High enough.