Under usual circumstances economic upturns bode well for recruitment specialists like SThree (LSE: STEM). But data looking at the European labour market should cause some concern for investors in this UK share.
In Britain, demand for workers is rocketing as Covid-19 restrictions are unwound and the British economy bounces back. But a massive shortage of worker availability could affect SThree’s ability to exploit this upswing. The Recruitment and Employment Confederation (REC) says that pandemic-related uncertainty and fears over job security caused candidate availability to drop at the second-sharpest rate since its Report on Jobs study began. The prior record was set in June.
Furthermore, REC’s report commented that “Brexit was also cited as a key factor reducing the supply of workers”. I would argue that this represents a much larger long-term threat to UK shares like SThree.
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Risks baked into the cheap share price?
That being said, I think that the problems created by this candidate shortfall could be reflected in SThree’s share price. City analysts think earnings here will rise 77% in the fiscal year to November 2021. Therefore at 500p per share the UK share trades on a forward price-to-earnings growth (PEG) ratio of 0.3.
It’s widely considered that a reading below 1 suggests that a stock could be undervalued. So it seems that SThree’s low multiple more than bakes in the threat posed by worker shortages in Europe. The company sources 38% of total net fees from Europe (excluding Austria, Germany, and Switzerland, where 34% of group fees are generated from). The UK accounts for 11% of net fees at group level.
Besides, SThree’s significant worldwide footprint helps to take the sting out of those European worker shortages. In the US, where the UK share sources 25% of net fees from, a scarcity of available candidates has started to improve more recently. The remaining 3% comes from Asia Pacific, where the prospect of strong economic growth and booming population levels bodes well from 2021 onwards.
Why I’d buy this UK share for long-term gains
SThree concentrates on supplying employees to the STEM (science, technology, engineering, and mathematics) arena. These four sub-segments are ones in which worker shortfalls have been particularly bad in recent times. However, as a long-term investor I think this focus could help me make great returns.
In an increasingly digitalised and technical world it’s likely that job numbers in this sector will soar. But as well as the opportunities created by our increasing demand for connectivity, other exciting areas for SThree include increasing demand for green technologies and the rising emphasis on scientific roles following the global pandemic.
This explains, too, why City analysts think SThree’s earnings will continue to rise solidly beyond this year. A 14% annual increase is predicted for financial 2022. While not without risk, I think the recruiter could prove to be a top UK share for me to buy for the next 10 years.
