Morgan Stanley downgrades Hays amid lack of near-term catalysts

Morgan Stanley downgraded its rating on the shares of recruiter Hays to 'equalweight' from 'overweight' on Tuesday as it highlighted a lack of near-term catalysts.

The bank, which cut its price target on the stock to 185p from 200p, said market data in Australia has slowed more than expected, adding to existing risks from the slowdown seen in Germany.

"Australia and Germany combined make circa 65% of Hays' operating profit, leaving the stock with no near-term catalyst to drive outperformance despite attractive valuation," MS said.

In its recent updates, Hays has flagged increasingly tough conditions in Australia. However, MS said that recent market data is weaker than expected, leading it to cut its estimates for Q3/Q4 Australian net fees growth by 3-4% to 4% and 0%.

"Hays has been outperforming the market and is a market leader in Australia. However, in a scenario where market data deteriorates and comps get tougher, it will be hard for Hays to continue this outperformance," it said.

The bank noted that its 'overweight' stance was based on longer-term opportunities in the German market, recovery in the UK and a good cash position.

"UK continues to tick along, the cash position is strong, and we remain believers of the German story; this is supported by Hays growing high single digit in a down market. However, cyclical slowdown is overpowering the long-term potential, and visibility remains limited."

At 1335 BST, the shares were down 0.7% at 151.70p.