Good morning!

Hydrogen (LON:HYDG)

Oh dear, it's another profit warning from this recruitment company. I last reviewed it here on 22 May 2014, when a rather hesitant trading update referred to lack of growth in fee income, and that they were cutting costs. As I concluded at the time, this is all wrong in a recovering economy. Competitors are reporting stronger sales, as they should be, given the reasonable pace of economic recovery in the UK now - so this should be positively impacting Hydrogen given that 56% of the group's gross profit comes from the UK (from last full year accounts, note 2(b) ).

I don't know if any readers actually use the hyperlinks I put into these reports, so if you don't note that I link to the RNS itself on investegate, and where relevant to my previous articles here. I did put in a deliberately incorrect link a few weeks ago to see if anyone would notice, but nobody commented on it.

Today's update follows the same format as before, saying that underlying business is good, but various delays & problems mean that they are performing badly. Net Fee Income (NFI) actually fell by 7% in the six months to 30 Jun 2014. That's bad.

So management are doing more restructuring, with exceptional costs of £1.8m likely for the full year. Interestingly that means the H1 profit warning does not follow through to the full year, as they say;

The strong client pipeline and reduced cost footprint give the Board confidence that future business profitability will improve, and the Board therefore believes that profit for the full year before exceptional items will be in line with expectations.

So it could have been a lot worse. Although there must be a high risk that something else will crop up in H2 to deliver another profit warning. It's just one after another with this company. The inescapable conclusion is that it's not a very good company. However, it has a reasonable Balance Sheet, with less debt than some other smaller recruiters, and it has consistently paid a generous dividend. the forward yield is just under 6% after this morning's 5p price fall to 77.5p per share.

For value investors, this might be worth a closer look. Although the key issue to my mind is whether management are any good. Current performance suggests they're possibly not.…

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