Considering that investor fears over the health of the global economy have steadily worsened in 2019, SThree (LSE: STEM) is a share that has proved remarkably resilient. In fact, it has risen a brilliant 30% in value since the end of last year, and the robust outlook for many of the company’s major recruitment markets convinces me that 2020 could be another year of progress for its share price.
My confidence was given an extra jolt following latest trading details on Thursday. It doesn’t matter that political uncertainty continues to pressure business in the UK and Ireland, a problem that forced collective net fees in these markets 9% lower in the 12 months to November.
Thanks to the strength of SThree’s international operations (spanning mainland Europe, the US and Asia), where aggregate net fees rose 10% year on year, fees were up 5% at group level. And this prompted it to affirm its pre-tax profits guidance of between £56m and £60.9m, up from £53.4m in fiscal 2018 and a figure that would result in new all-time annual highs.
On the charge
As I say, there are a lot of jitters flowing through financial markets at the moment as US-led trade wars escalate, Brexit uncertainty rages on and key economic gauges — and particularly those from Europe — continue to disappoint.
But this is not hampering SThree’s attempts to make further bottom-line progress. Indeed, it has said that “the new financial year has started well with good demand, and this gives us confidence that we will continue to outperform materially in our international markets.”
There are a couple of significant reasons why the FTSE 250 firm continues to trade more encouragingly than much of the global recruitment market. The company’s focus on the niche areas of Science, Technology, Engineering and Mathematics — or ‘STEM,’ as per SThree’s stock market ticker — provides a layer of protection that many of its rivals can only dream of.
On top of this, the London-based firm’s decision to redouble its efforts in the contract market over the past year are helping it to keep thriving in a market where macroeconomic stress and political uncertainty are prompting many employers to delay making permanent hires and to maintain a more flexible recruitment policy. SThree now generates just under three-quarters of all net fees from the Contract operation, a segment from which fees rose 8% in the last year.
Stunning value
It doesn’t surprise me, then, that despite a murky outlook for the global economy, City analysts expect SThree’s profits to keep trekking higher, an 8% rise currently being predicted for financial 2020.
And this gives investors two reasons to celebrate: firstly it leads to predictions of more dividend growth and subsequently a fat 4.7% dividend yield. And secondly it leaves the business trading on a dirt-cheap forward P/E ratio of 9.7 times, one that provides plenty of scope for more share price gains in the new calendar year. I’d happily buy SThree in the hope of scintillating returns in 2020 and beyond.
