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magazineRecruiter SThree has big growth prospects and cheap shares
Shares in recruitment firm SThree (STHR) are really cheap versus the company’s growth prospects. Buy the stock now as it should either re-rate in line with peers or an overseas rival could come and gobble up the business.
SThree is a global player specialising in the fields of science, technology, engineering and mathematics (STEM). It provides permanent and contract staff to the information and communications technology sector, as well as to the banking, finance, energy, engineering and life science industries.
Given its focus on STEM recruitment, which has a higher growth rate than the overall market, and its strength in contracting which is less cyclical than permanent recruitment, we believe that SThree should trade on at least the same valuation multiple as its global peers rather than a 30% to 40% discount.
The STEM markets which the business primarily serves are seeing high growth and are critically under-supplied with talent. Therefore SThree is well placed to charge more to find suitable candidates. In the UK, jobs in science, research, engineering and technology are predicted to grow twice as fast as other careers while the US market faces a dearth of over 1m workers for STEM roles by 2024 according to the firm.
The focus on contract recruitment, which makes up over 70% of revenues, gives it visibility of earnings in strong markets and resilience in uncertain times.
Also its geographic diversification, with over 80% of revenues generated outside the UK and Ireland in markets like the US, Japan and Germany, allows it to pursue growth opportunities wherever they occur while limiting its exposure to individual markets.
Matthew Tillett, manager of Allianz UK Opportunities Fund (B8BB944), is also a fan of the stock. He says: ‘The valuation at 8 to 9 times earnings is attractive both in relative and absolute terms, and in no way reflects the excellent long-term growth prospects of the business or the growth potential of the company.’
SThree’s new chief executive Mark Dorman, who joined the business in March, brings a wealth of experience in helping international businesses scale up and grow their market share.
He says: ‘SThree is in an incredibly strong position and its focus on being the number one STEM talent provider in the best STEM markets is the right strategy.
‘These markets are set to grow significantly with wholly positive secular trends. This presents a tremendous opportunity and our priority is to drive growth through a data-led approach while enhancing our global platform to fully capitalise on the substantial opportunities ahead of us.’
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