Investment Column: SThree has the skills to keep growing

Hyder Consulting; Gooch & Housego


Our view: Buy

Share price: 395.9p (+2.5p)

The overall UK recruitment market might be sluggish but this did not stop SThree, the specialist permanent and temporary staffing business, growing its gross profit by nearly a quarter in its first half.

This appeared to vindicate the long-term strategy of SThree – which still derives the bulk of its revenues from IT and technology placements – of extending its reach into other sectors, from finance to pharmaceuticals, as well as growing its international presence to 55 countries.

Moreover, the company has continued to grow both permanent and temporary placements in the UK, up by 6 per cent and 5 per cent respectively, over the six months to 29 May with fees improving thanks to its focus on specialist recruitment, such as engineers for the oil industry and mathematicians for investment banks.

The average salary for a permanent placement done by SThree is £50,000 and £90,000, on a pro-rata basis, for contractors. Gross profits jumped by 23 per cent to £90m over the period, which was ahead of City expectations. However, growth at its overseas operation – spanning countries from France and Germany to its recently opened office in Brazil – continues to outstrip the UK.

Non-UK profit grew by 34 per cent over the period, while the UK posted a more modest 9 per cent rise. The sluggishness of the wider UK job market was laid bare by a recent Markit survey, which said permanent placement and billings for temp staff rose at their weakest rate for seven months in May.

Indeed, SThree's non-UK operations accounted for 63 per cent of the group's £90m gross profit. Overall, we think there is much to recommend SThree, despite a good run in its shares since November, which leaves them on a forward earnings ratio of 15.3 times.

Perhaps more enticing is the expectation in the City that SThree will pay a special dividend to release some of the £47m of cash on its balance sheet to shareholders. But it is the international growth and expansion of the company that makes us buyers, despite the sluggish UK market.

Hyder Consulting

Our view: Buy

Share price: 390p (+3p)

We have been fans of Hyder Consulting since last summer. The intervening period has seen the shares enjoy a heady rally, and a vertiginous slump, but overall, they're up more than 15 per cent. The question, then, is whether now is the time to bank profits or hold on for more – or maybe even add to our holdings in anticipation of further strong gains.

The first option was torpedoed by the design and engineering consultant's full-year results. The headline figures surpassed market hopes as its margins advanced over the course of the year. Cash generation was also strong, and the group upped its full-year payout for shareholder by nearly 30 per cent.

Needless to say, this is not one to sell. You would, however, think that recent gains would have made Hyder too pricey to be seen as a buying opportunity. Well, at around 11 times forward earnings, the stock trades in line with the sector average, which looks harsh, in our view. The group's strong performance, not to mention its international exposure, merits a higher rating.

All this points to only one thing and so, despite being well-placed to bank profits, we are extending our call. We expect Hyder to deliver further gains in the months ahead.

Gooch & Housego

Our view: Hold

Share price: 584p (+15p)

Gooch & Housego has produced a stunning turnaround since a decidedly shaky period during the downturn. The shares have leapt from a nadir of under 50p during 2009. But is there more to come?

The company produces a range of optical equipment, lasers, fibre optics and the like across sectors including aerospace and defence. Sales are global, reassuring to those nervous about Britain's struggles. The group has also made some sensible acquisitions that have diversified the product range and enhanced existing capabilities.

As a result G&H has been a big beneficiary of the global recovery, with revenues and profits rising nicely. The historically stronger second half should prove even better, and the interim dividend is back.

And though the shares are no longer cheap at 17 times forward earnings, they are worth holding. We would, of course, buy in the event of a pullback.

Start your day with The Independent, sign up for daily news emails
News
Britain's opposition Labour Party leader Ed Miliband (R) and Boris Johnson, mayor of London, talk on the Andrew Marr show in London April 26
General electionAndrew Marr forced to intervene as Boris and Miliband clash on TV
News
peoplePair enliven the Emirates bore-draw
Arts and Entertainment
tvPoldark episode 8, review
News
news
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
Public relations as 'art'? Surely not

Confessions of a former PR man

The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

Bill Granger's luxurious sweet treats

Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

The mother of all goodbyes

Paula Radcliffe's farewell to the London Marathon will be a family affair
Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

Steven Naismith: 'We know we must do better'

The Everton forward explains the reasons behind club's decline this season
Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

Michael Calvin's Last Word

Praise to Wenger for having the courage of his convictions