Recruiter SThree (STHR) is aiming to be the number one talent provider in STEM fields (science, technology, engineering and mathematics). That sounds like a sensible strategy as STEM employment commands a higher rate than other parts in the recruitment industry. Indeed, in the first six months of 2018, revenues in SThree's contract business (which is well suited to the STEM market) rose 14 per cent, far outpacing the 4 per cent growth in the permanent business.
But this shift comes with associated costs. The increased working capital from a larger book of contractors has affected cash conversion, which fell to just 13 per cent from 48 per cent in the comparable period of the prior year. Meanwhile, exceptional costs associated with the relocation of many of the group’s support functions from London to Glasgow dented reported earnings. Once up and running, the new site is expected to generate £5m in savings each year. But for now it has led to £9.1m in costs – £2.4m in these numbers – with a further £5.9m expected before the project is completed.
Still, analysts at Liberum are forecasting adjusted pre-tax profits of £48m, giving EPS of 26.5p for the year to November 2018 (up from £44m and 24.9m in 2017). In the longer term, a larger book of contractors, combined with investment in technology for communicating with and managing them, should lead to increased earnings.
| STHREE (STHR) | ||||
| ORD PRICE: | 352p | MARKET VALUE: | £457m | |
| TOUCH: | 348-352p | 12-MONTH HIGH: | 390p | LOW: 290p |
| DIVIDEND YIELD: | 4.0% | PE RATIO: | 17 | |
| NET ASSET VALUE: | 59p | NET DEBT: | 8% | |
| Half-year to 31 May | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 | 521 | 19.2 | 11.0 | 4.7 |
| 2018 | 586 | 17.8 | 10.1 | 4.7 |
| % change | +12 | -7 | -8 | |
| Ex-div: | 01 Nov | |||
| Payment: | 07 Dec | |||
