The Investment Column: It's worth taking on a share of impressive SThree

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Sthree

Our view: Buy

Share price: 168p (+14.75p)

Shares in recruitment companies have been hammered as fears grow of a sharp and prolonged rise in unemployment. Those firms which used to pride themselves on their expertise in placing people in banking and finance jobs are among the worst hit.

But the 70 per cent fall in the value of the recruitment specialist SThree – shame about the name – looks harsh, especially when viewed in the context of yesterday's impressive half- year performance.

Thanks to strong growth across its rapidly growing international network, the group, which specialises in information technology, pharmaceuticals, legal and banking, delivered a near 14 per cent rise in pre-tax profits after exceptionals to £21.8m.

But while the international side grew gross profits by 58 per cent to £42m, at home there was a more pedestrian 8 per cent improvement to £60m. The fallout in banking and finance was not solely to blame. The group also found it hard to recruit the right people in other fields, while momentum suffered from the decision to switch skilled senior consultants sideways from banking into sectors offering greater prospects. Among the recruitment areas showing positive advances are oil and gas.

Overseas, new offices were opened in Amsterdam, Paris, Dubai and Sydney, providing the group with a real defensive bias as well as creating opportunities for exporting some of its skills. For instance, it has had a successful UK engineering consultancy for some years but has only now just started placing recruits in firms within continental Europe. Germany, in particular, looks promising.

There is no denying prospects for the industry remain uncertain. Fortunes can change abruptly as embattled firms freeze recruitment or, worse, begin laying off staff. The fact demand for temporary workers is growing faster than the market for full-time employees for the first time in five years underlines the scale of the challenges ahead.

But SThree has a reputation honed over 20 years and has developed a highly diversified client base coupled with its growing emphasis on expansion into overseas markets. The shares enjoyed a near-15 per cent bounce, and, underpinned by a 7 per cent yield, look good value.

Mears

Our view: Buy

Share price: 275.5p (+17.5p)

When Labour came to power, there were fears that it could spell the end of the great outsourcing boom as town halls came under pressure to employ direct labour rather than farm out work to the private sector.

It never happened. The sector – witness the growth of companies like Capita – has ballooned in size, swallowing former local authority services ranging from dustbin collection to park maintenance and payroll management.

Mears remains a tiddler worth less than £200m, but it has an order book of £1.6bn, having added more than £340m of work in four months. Yesterday, it unveiled a 10-year contract worth £157m to carry out repairs and maintenance such as mending leaking roofs and windows for more than 30,000 properties run by Metropolitan Housing Trust, one of the largest housing associations in the country. Another £13m spread over four years will come from keeping Bracknell Forest Homes' portfolio of 5,600 properties in good order.

Mears has used its experience of working with local authorities to tack on a domiciliary care business, tending to elderly people in their own homes. There has been talk of it making a sizeable acquisition to accelerate expansion.

Floated on AIM in 1996 at 10p and having delivered compound annual growth of 40 per cent, Mears promoted itself to the main list in June so it now appears on major institutions' radar screens. Broker Brewin Dolphin says "buy", forecasting the shares will reach 320p in a year.

Peter Hambro Mining

Our view: Hold

Share price: 1,085.5p (unchanged)

The gold miner Peter Hambro Mining has lost nearly 15 per cent of its value over the past month, moving significantly in the opposite direction to the gold price. One leading broker now calls it the cheapest gold stock in the world. But buyers are still exercising caution, having been unnerved by concerns over operational challenges and its rights to various assets in Russia.

A trading statement should have lifted some of the gloom. The Russian-based miner said production for the first six months of the year was up 9 per cent at around 147,000 ounces, with output from its flagship Pokrovskiy mine ahead of estimates. Despite delays at its Pioneer mine, the company is on track to meet its production target of 350,000 to 400,000 ounces for 2008.

The group is also making progress in keeping the lid on costs – important when inflation in Russia is running at around 15 per cent. Brokers expect total costs to rise between 15 and 20 per cent this year.

Gold sales have fetched around $901 an ounce, up 35 per cent on the same period last year. The key challenge is meeting delivery targets, particularly at Pioneer which is ramping up to full production. Hold.

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