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SThree slowly progresses

RESULTS: SThree continues to focus on international expansion as gross profits start to pick up
July 19, 2010

SThree’s results focused once again on the ongoing diversification of the recruiter’s operations. First-half staff levels were 24 per cent down on the previous year, leading to a 20 per cent dip in gross profit to £74.3m. But 10 per cent of profits now comes from outside the UK and Europe (2009: 3 per cent), while just 19 per cent of customers are ICT-related even though two thirds of candidates have an ICT background.

IC TIP: Hold at 281p

And this diversification seems to be paying off. Gross profit was up 7.8 per cent in the second quarter on the first, as permanent placements increased by 12 per cent, while June’s gross profit was up 15 per cent year-on-year. Headcount is now being increased again, up 11 per cent since the end of November, as four offices opened in the first half and operations in San Francisco and Qatar planned for later this year. What's more, the pain from UK public sector cuts should be minimal as exposure has been reduced to 7 per cent of total placements, and could even provide an opportunity, as job losses provide churn in the private sector.

KBC Peel Hunt forecasts full-year adjusted pre-tax profits of £21.1m and EPS of 11.5p (2009: £18m/9.2p), rising to £28.9m and 15.8p, respectively, in 2011.

SThree (STHR)

ORD PRICE:281pMARKET VALUE:£345m
TOUCH:280-282p12-MONTH HIGH:388pLOW: 177p
DIVIDEND YIELD:4.2%PE RATIO:41
NET ASSET VALUE:57pNET CASH:£31.6m

Half-year to 30 MayTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20092812.701.14.0
20102227.354.04.0
% change-21+172+264-

Ex-div:03 Nov

Payment:03 Dec