Half Year Results 

SThree: increasingly international

SThree: increasingly international

SThree’s (STHR) half-year results hold few surprises for those following the recruitment sector in recent months. The UK market has continued to struggle following the EU referendum result, while continental Europe and the US have proved more fertile recruiting grounds. In SThree’s case, domestic gross profit reduced by 16 per cent to £27m in the first half, representing just a fifth of the group total: in 2016 it was a quarter. Europe, by contrast, has grown its gross profit by 7 per cent year on year, in constant-currency terms, and now contributes half.

The US business also looks to have turned a corner, with chief executive Gary Elden describing the country as the “biggest opportunity for us”, due to its strength in markets such as life sciences and banking.

The group is taking advantage of the shift towards temporary placements with the growth of its contracts business. SThree benefits from its focus on science, technology, engineering and mathematics, where contractors command a higher rate than elsewhere. Contract business grew 8 per cent in constant currencies during the reported period, while the permanent business shrank 10 per cent in the same period. Growing the contracting business is a priority for management: it now accounts for 70 per cent of gross profits.

Analysts at UBS have increased their pre-tax profit forecast to £42m, giving adjusted EPS of 24.2p for the year to November 2017 (from £40.8 and 23.21p in FY2016).

STHREE (STHR)   
ORD PRICE:292pMARKET VALUE:£375m
TOUCH:291-292.5p12-MONTH HIGH:335pLOW: 221p
DIVIDEND YIELD:4.8%PE RATIO:12
NET ASSET VALUE:55pNET CASH:£5.2m
Half-year to 31 MayTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201644312.87.34.7
201752119.211.04.7
% change+18+50+51 
Ex-div:2 Nov   
Payment:8 Dec   

IC View

Strong growth abroad and an ability to maintain a net cash position even as the cash-consuming temporary business grows makes SThree look cheap at 12 times forecast earnings. Buy.

Last IC View: Hold, 311p, 24 Jan 2017

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