The previous quarterly net fee updates had shown the extent of the net fee recovery SThree has experienced so far in FY21, but the real story of the H1 results is the improving conversion ratio driven by significant productivity gains and improving business mix (ECM now 31% of contract net fees). Critically, both net fees and PBT are now tracking ahead of the FY19 comparative, which underscores the strength of the recovery. For the third time this year we are upgrading our estimates with FY21 net fees / PBT increasing by 4% /9% respectively. We would have pencilled in a stronger upgrade but for lingering concerns over Covid tail risks, contractor working day adjustments and a moderate degree of H2 productivity reversion. Looking forward, there is no doubt that the risks to estimates remain on the upside, especially looking at net fees. We are mindful that the likely headcount rebuild through H2 FY21 and H1 FY22 could impact FY 22 productivity and this is driving a smaller 4% / 5% upgrade to our FY22 net fees / PBT estimates. Year to date, SThree has materially outperformed both the peer group and the broader market and we see little to suggest that this trend will not be maintained. The valuation gap to the peer group has narrowed dramatically as SThree’s structural growth positioning and quality of earnings has clearly resonated.
19 Jul 2021
H1’21 interim results – 9% PBT upgrade
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H1’21 interim results – 9% PBT upgrade
SThree plc (STEM:LON) | 426 12.8 0.7% | Mkt Cap: 574.9m
- Published:
19 Jul 2021 -
Author:
Iain Daly -
Pages:
4
The previous quarterly net fee updates had shown the extent of the net fee recovery SThree has experienced so far in FY21, but the real story of the H1 results is the improving conversion ratio driven by significant productivity gains and improving business mix (ECM now 31% of contract net fees). Critically, both net fees and PBT are now tracking ahead of the FY19 comparative, which underscores the strength of the recovery. For the third time this year we are upgrading our estimates with FY21 net fees / PBT increasing by 4% /9% respectively. We would have pencilled in a stronger upgrade but for lingering concerns over Covid tail risks, contractor working day adjustments and a moderate degree of H2 productivity reversion. Looking forward, there is no doubt that the risks to estimates remain on the upside, especially looking at net fees. We are mindful that the likely headcount rebuild through H2 FY21 and H1 FY22 could impact FY 22 productivity and this is driving a smaller 4% / 5% upgrade to our FY22 net fees / PBT estimates. Year to date, SThree has materially outperformed both the peer group and the broader market and we see little to suggest that this trend will not be maintained. The valuation gap to the peer group has narrowed dramatically as SThree’s structural growth positioning and quality of earnings has clearly resonated.