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SThree – trading update argues “solid base”, but what about the macro picture?

By Steve Moore | Friday 16 June 2017


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


Shares in staffing business SThree (STHR) are currently trading higher, above 300p, on the back of a half-year trading update. However, they are still lower than the more than 330p reach earlier this year, so what’s the current story here?

The update (for the six months ended 31st May 2017) emphasises constant currency “gross profit up 2% YoY (to £134.3 million) with acceleration in Q2 when group gross profit grew by 4%”, and with Chief Executive Gary Elden noting “we are encouraged by the improvement in momentum across the business in the period, particularly the strong performances in Continental Europe and the USA, which is now our second largest region”.

The detail shows 16% USA growth (to £29.7 million of gross profit, +20% in the second quarter) and 7% Continental Europe growth in both quarters (to £69 million). The second quarter also saw a return to Asia Pacific & Middle East growth (gross profit of £8.6 million for the half), though UK & Ireland remained strongly negative (-14% in Q2, -19% in Q1, total of £27 million), “adversely impacted by the decision of the UK to leave the EU and Public Sector reforms”.

It is also noted that the US “headline growth rate in H1 was boosted by a number of one-off factors” and that period end net cash was “circa £5m”. Elden concluded “looking ahead, the continued momentum of our Contract business and improved Permanent yields give us a solid base from which to grow in a macro-economic environment which remains uncertain”. Broker Liberum reckons the momentum “alongside the group's attractive geographic and discipline exposure and its contract bias leaves the company relatively well placed to navigate through these uncertain times”.

Hmmm. It may be relatively well placed, but there look to currently be significant global macro-economic challenges – comparing to a forecast price/earnings multiple here of circa 14x. There is also a prospective dividend yield of circa 4.5%, but macro concerns currently see me continue to avoid.

Incidentally, Liberum notes these shares “trade on a CY17 PE multiple discount of 11% to the sector average rating” - something perhaps for InterQuest shareholders to consider.


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