International specialist staffing business SThree (LSE: STHR) issued a trading update this morning for the six months to the end of March with somewhat disappointing figures from its UK & Ireland operations. The group’s performance in the UK was adversely affected by a combination of public sector reforms and of course last summer’s EU referendum result. But should investors be worried?
I think not. And with the share price 3.5% higher by late afternoon, it seems like the market agrees. The group’s UK business may have let the side down with gross profits sliding from £32.1m to just £27m, but the firm’s geographical diversity means that this now only accounts for around 20% of overall gross profits. Don’t you just love the irony of yet again seeing those pesky Europeans propping up UK businesses since the Brexit vote? Who needs them? It seems like we do.
Valued by the market at just over £400m, the London-headquartered staffing firm may be much smaller than multi-billion pound rivals such as Hays and PageGroup, but is nevertheless an established player in the Information & Communications Technology (ICT) sector. Since launching in 1986 as Computer Futures, the group has adopted a multi-brand strategy, establishing new operations to address growth opportunities, and has now broadened its base to include businesses serving the Banking & Finance, Energy, Engineering and Life Sciences sectors.
SThree may not be a name familiar to most, but its brands include Computer Futures, Huxley Associates, Progressive and The Real Staffing Group and are particularly well known amongst IT, banking and finance, and engineering professionals. The small-cap recruiter now provides both contract and permanent staff to a very diverse range of clients in 18 different countries, spanning Europe, the Middle East, Asia Pacific, and the US.
Overall, gross profit for the first half of the fiscal year came in 2% higher at £134.3m, compared to £119.8m for the same period in 2016, with acceleration during the second quarter when gross profit rose 4% year-on-year. Most encouraging was the improvement in momentum across the whole business during the period with particularly strong performances in Continental Europe and the US, which has now become the group’s second largest region.
A rare breed
The US delivered the best results with a 16% improvement in gross profits to £29.7m, while Continental Europe was 7% ahead of last year at £69m and still remains the group’s most important market. The Asia Pacific & Middle East region lagged behind with a 4% drop in profits to £8.6m, with the UK & Ireland a disappointing fourth, gross profits here plummeting 16% to £27m.
Overall, I see the results as largely positive. With around 80% of the group’s profits now being generated outside the UK & Ireland, I see steady growth continuing despite the prospect of Brexit and the uncertainties it brings with it. With a generous 4.7% dividend yield on offer at current levels, I still see SThree as one of a rare breed of income stocks from among the smaller London-listed firms.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.