Daily Stock Market Report (Thur 19 June 2025) - JNEO, ANP, HSW, XPS, CAPD, HAYS, REVB, MEGP

Good morning!

The Federal Reserve did as expected, keeping interest rates unchanged, and continuing to indicate two rate cuts later this year.

And I've published an article to provide an overview of the PE investment trust sector - here's the link.

Spreadsheet accompanying this report: link.

Let's wrap it up there, thank you.

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Companies Reporting

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Graham's Section

Hays (LON:HAS)

Down 12% to 61.65p (£981m) - Pre-Close Year End Trading Update - Graham - BLACK (AMBER/RED)

We’ve been getting increasingly concerned about the recruitment sector and its seemingly never-ending slump: is it really just a temporary economic effect, or has something structural happened, especially when it comes to Permanent recruitment? Is it being “disintermediated” by the likes of LinkedIn?

Today’s update blames continued macro uncertainty for weaker profits:

c.£45m pre-exceptional operating profit expected in FY25 primarily due to more challenging Perm markets

The consensus forecast, as helpfully provided by the company, was £56.4m.

Permanent recruitment remains weaker than temporary/contract:

Activity levels during our fourth quarter (ending 30 June) have reduced sequentially driven primarily by broad-based weakness in Perm markets globally reflecting low levels of client and candidate confidence as a result of macroeconomic uncertainty. Temp & Contracting activity continues to be more resilient.

Note again the explanation: “low levels of client and candidate confidence as a result of macroeconomic uncertainty”.

But does this really make sense? I acknowledge that the German economy - where Hays is most active - has indeed shrunk very slightly, for the past two years.

But the EU overall, the US and UK are not in recession.

In the best-case scenario, we can say that recruiters are very economically sensitive. Even though the major economies are not in recession, economic growth has still not been strong enough to enable them to generate strong results.

Some key bullet points from the rest of the update:

• Like-for-like net fees down 9% year-on-year in Q4, or 8% down adjusted for the number of working days.

• Within this, Perm is down 14% and Temp/Contracting down 5%.

• The weakest geographies are EMEA (excluding Germany), UK&I and ANZ. The relatively strongest are Asia and North America.

Cash is “in line with normal trends”, with a modest net cash position expected at year end. Cash flow can be volatile in this sector.

Outlook: no light at the end of the tunnel yet.

We expect current challenging market conditions to persist into FY26 and remain committed to delivering our focused strategy. Our initiatives to improve net fee productivity in real terms and back-office efficiency will be important drivers of medium-term profit recovery when the market recovers.

Graham’s view

Mark noted in February that there were risks associated with this one, including an anticipated H2 weighting for EPS.

Now that this risk has materialised in the form a full-fledged profit warning, I’ll have to downgrade our stance on it from neutral to AMBER/RED, on the basis that profit warnings tend to be followed by other profit warnings.

The trend in EPS forecasts has been truly miserable:

I’m going to have to re-examine whether I can look positively on any recruiters, given what is happening in the sector. Perhaps we might see some balance sheet bargains among them at some point, that could benefit from a future recovery. But for now, with the likes of Hays (where there is little balance sheet support), I would stay away.

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Roland's Section

XPS Pensions (LON:XPS)

Down 2.5% to 367p (£767m) - Final Results for y/e 31 March 25 - Roland - AMBER/GREEN

We are confident that we are well placed for further growth in FY 2026 and beyond.

Pension consulting and administration specialist XPS has reported another strong set of results. Revenue rose by 16% to £231.8m last year, while the group’s adjusted pre-tax profit climbed 34% to £59.5m.

Today’s adjusted earnings of 20.6p per share appear to be slightly ahead of Stockopedia’s consensus earnings figure of 19.3p per share. An updated note from broker Canaccord Genuity today confirms that today’s results are c.6% ahead of its earnings forecasts.

Shareholders are rewarded with an 19% rise in the full-year dividend to 11.9p. This is also ahead of forecasts and gives a useful 3% yield.

Trading commentary: looking across the business, XPS reports double-digit growth in both main divisions:

Advisory: revenue up 10% to £125.5m. Within this, Actuarial & Consulting revenue rose by 14% to £106.1m during the year thanks to growth in risk transfer (e.g. defined benefit buyouts) and GMP (Guaranteed Minimum Pension) projects.

The other component of advisory revenue is Investment Consulting, where revenue fell 4% to £19.3m, which the company says is due to activity levels normalising after having risen by 46% growth over the last two years.

Administration: revenue rose by 30% to £93.7m. XPS now administers pensions for a total of 1.2m members, an increase of 9% over the year. Management says that growth last year was driven by GMP projects and one-off McCloud remedy projects, in addition to new client wins.

The company flags up the successful onboarding of the John Lewis Partnership pension scheme administration contract as a particular highlight – this was completed ahead of schedule.

This is exceptional growth, but it’s clear that some of it has been one-off in nature. As far as I understand them, GMP and McCloud have both generated one-off work that will taper as the related issues are resolved. XPS says that 94% of McCloud members have now received a remedy statement.

The company believes it’s one of a very small number of pension administrators able to handle this kind of work. As a result, management believes that successful delivery of these projects has positioned it well to win similar work in the future.

Profitability: it’s worth highlighting that XPS’s 2023/24 reported profits (and margins) were boosted considerably by the disposal of a business unit.

In addition to this, XPS reports the usual hefty adjustments to profits for common items that I generally prefer to include in my measure of profit.

Even so, today’s results show that the group’s growth has continued to drive underlying margins higher, thanks to positive operating leverage.

My sums suggest the following comparable statutory metrics for the last two years, adjusted to exclude the FY24 disposal gain:

• Operating margin: 19.1% (FY24: 17.3%)

• Return on capital employed (ROCE): 16.3% (FY24: 14.7%)

This is a very good level of profitability, supported by good underlying cash conversion. Excluding £18.7m that was spent buying shares for the Employee Benefits Trust last year, I calculate free cash flow of £29.6m – almost 100% conversion from net profit of £30.3m.

The EBT purchase is a real cash outflow and I view this as a remuneration cost, as the shares will be used to settle employee share options. For these reasons, I’m inclined to include it in free cash flow, cutting genuine surplus cash to £10.9m.

However, last year’s EBT purchases were three times larger than the £5.6m spent in FY24. I don’t know if the FY25 figure was a one-off or will be more typical of future years.

What I would say is that as we often see with professional services businesses, it’s worth noting that generous remuneration can eat into the amount of surplus cash available for shareholder returns.

XPS’s net debt rose by £26.3m to £40.3m last year, in part because the combination of dividends and EBT purchases were not fully supported by free cash flow. This level of borrowing doesn’t concern me, but I think the principle is worth monitoring.

Outlook: XPS acknowledges the one-off nature of some recent work, but believes such circumstances will continue to arise as market and regulatory change continues.

The group’s expansion into the “closely related” insurance consulting sector is also expected to add to its addressable market. XPS says that while its core pension market has £2.5bn in fee potential, the insurance business it’s targeting could add a further £1.5bn to this figure.

However, management admits that the absence of a further McCloud type project means that comparators will be tough in FY26.

FY 26 expectations are unchanged today, in line with upgraded guidance issued in February.

With thanks to Cannacord Genuity for sharing their coverage, I can see that its analysts have left their forecasts (almost) unchanged today:

• FY26E: 21.1p (previously 21.0p)

• FY27E: 22.8p (previously 22.5p)

These figures leave XPS on a FY26 P/E of 17.5 and imply earnings growth of 2.4% and 8% in FY26 and FY27 respectively. That’s a significantly slower rate of growth than we’ve seen over the last couple of years.

Roland’s view

The flotation of XPS has been a success story for the London Market and for small-cap investors who’ve stayed on board for the ride. The stock has risen by 140% since 2017 and paid meaningful and growing dividends along the way:

The company has now grown into an established FTSE 250 member with good quality metrics and a seemingly strong competitive position.

I don’t see any reason to doubt XPS’s ability to continue growing over the medium term. But with growth expected to slow over the next year or two, the valuation is starting to look a little more stretched to me.

For this reason, I’m going to leave XPS unchanged at AMBER/GREEN today.