Hays can recover from its bad day at the office

Despite the rose-tinted rating enjoyed by the rest of the services sector, the Hays share price is not a pretty sight. In fact, it hasn't been a pretty sight for a good seven months.

Despite the rose-tinted rating enjoyed by the rest of the services sector, the Hays share price is not a pretty sight. In fact, it hasn't been a pretty sight for a good seven months.

Little did Hays know back then that it was sitting on the edge of a 15 per cent abyss. So far, the City seems reluctant to winch it out.

All that may soon change. Hays' offering is a complicated mixture of distribution, staff recruitment and office support services to commercial, industrial and professional customers.

This makes the business of assessing the company fairly tricky, and following the spectacular fall from grace of Rentokil, few have wanted to be the first to give multi-divisional plays the benefit of the doubt.

But the latest thinking is that the market has taken the doubt too far. Two months ago, Hays struck a $10m (£6.6m) deal with US technology giant i2 to use the latter's state-of-the-art supply-chain software.

Although the initial impact of the deal has led analysts to cut their profit forecasts for next year, most are sure the move was spot-on.

The i2 package optimises supply chains, and is virtually unchallenged as the best at its job. One of its successes has included a reworking of Dell Computers' business, cutting the time the mail-order company's stock spends in warehouses from 70 days to 12.

So far Hays has been rather coy about the full details of the deal, but it has strongly hinted that it will be the backbone of its ambitions to expand further into Europe.

The group already has supply-chain software of its own but the efficiency gains could add a lot of value, both to its own activities and those of its clients.

The group plans to target 25 European companies and a good chunk of those will be entirely new customers. Hays will be using its September results announcement to give the definitive low-down on i2, which should restore some faith in the bigger picture.

The bears, however, will still point out several shortcomings. In its logistics division, Hays' investment in a pan-European network combined with competitive pressures will dent profits. In Germany, the group has had to close its struggling bulk transport business with a one-off loss of about £5m.

The highly profitable personnel business faces increased threats from low-upkeep dot coms. A combination of other factors such as exchange rate and interest issues has further soured investor sentiment.

It's a tough one to call, but fundamentally Hays is a decent business and heading in the right direction. Non-core disposals over the coming months will look increasingly like positive strategic action, and the market will gradually realise the share price fall was overdone.

This could take the price back up to around 450p. At Friday's 354p close, it looks like a buying opportunity if you're prepared to stay in for a while.