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Sthree Plc
Q4 trading update – Resilient model, outperforming

The reassuring Q4 trading update capped off a positive run for SThree. The share price has responded to a combination of a well-received Capital Markets Day and a post-election peer group rally. The trading commentary around Q4 and FY2019 shows a group continuing to outperform in its key international growth markets. The tone around Q4 exit momentum was cautiously optimistic; especially in Continental Europe and USA. UK & Ireland remain challenging but there is a growing sense the macro sentiment backdrop may now ease off. We discuss the Capital Markets Day in more detail in this note but the key themes revolved around the long terms structural trends that SThree has positioned itself to take advantage of; the relevance of the SThree business model (both revenue and economics) and overall growth ambitions and strategy looking forward to FY2024. Even after a strong run in the share price; SThree continues to trade at a material (25%) PE discount to the peer group. The peer group has re-rated upwards sharply despite a deteriorating EPS estimate trend. Based on current consensus; SThree is now expected to outgrow the UK peer group in FY2020.

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  • 18 Dec 19
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Next Fifteen Communications Group
Interim results in-line – Health acquisition, estimates unchanged

The NFC rating has come under pressure due to a combination of macro concerns and a 1% organic revenue decline just reported for H1 FY2109. The organic decline is largely driven by two of the seventeen portfolio businesses with organic growth elsewhere in the portfolio improving from previous data points. We expect the issues at Beyond to correct through H2 which, combined with healthy organic growth elsewhere in the portfolio and a full contribution from Health Unlimited, leads us to upgrade our FY 2020 expectations. NFC now trades at a PE discount to both the Agency and Small Cap Media peer groups despite a superior growth profile. The balance sheet remains comfortable.

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  • 14 Oct 19
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Sthree Plc
Q3 trading update – Is the message finally landing?

The Q3 trading update was consistent with previous updates and results. SThree continues to perform well in its key growth markets and niche verticals. Net fees were up 6% despite tough comps. As in previous commentaries, management were right to flag macro concerns even though the business has yet to show any signs of material weakness. The key message we took away was that overall expectations for the full year remain unchanged. The subsequent SThree share price outperformance suggests the market may be listening. The Capital Markets Day will be on 21st November. This will provide new CEO, Mark Dorman, the opportunity to outline clearly the direction of travel. We also see the CMD giving a deeper dive into the clear structural growth opportunities and SThree’s less visible assets. We recently spent time at the Glasgow Centre of Excellence and came away seeing Glasgow as far more impactful and front foot than a pure cost cutting exercise. Critically, we believe SThree has a powerful case to make around the fundamental economics of its business model and how this differentiates SThree from its more transactional peers.

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  • 30 Sep 19
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Sthree Plc
H1 2019 results – Expectations unchanged

The H1 results were well flagged post the Q2 trading update but they served to give a reassuring update on the current trading outlook as well as providing the new CEO, Mark Dorman, with a further opportunity to outline his take on the STEM opportunity and how SThree is likely to evolve to best capture that opportunity. Here we see a growing focus on strategic decision making and capital allocation discipline. The November capital markets day will provide an opportunity for this to be laid out in detail. SThree continues to perform well, delivering the best net fees growth in the peer group coupled with good margin expansion as the benefits of the Glasgow relocation flow through. Given macro concerns that are now weighing on the Perm heavy peer group; all eyes were on the outlook and here the tone was cautious but reassuring. Full year expectations remain unchanged with current trading solid. Clearly, management are sensitive to the macro headwinds that have been in place for some time now, although these have yet to materialise in the trading performance. The 29% PE discount to the peer group remains anomalous in our eyes.

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  • 30 Jul 19
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Sthree Plc
Encouraging H1 19 trading update

The H1 pre-close update saw positive Q1 trading momentum carry through into Q2. This performance has been delivered despite uncertain macro data. Encouragingly, SThree remarked ‘expectations for the full year remain unchanged’. Group H1 net fees + 9% YoY, is a creditable outcome, reflecting a consistent performance across Q1 / Q2. We are leaving our headline FY PBT/EPS forecasts unchanged, although we have made some minor changes to our regional mix. We would also highlight the improving balance sheet position, with net debt down to £8m (£12m at Q2). The update was also the first opportunity for investors to hear from new CEO, Mark Dorman, who joined SThree in March. Major shifts in strategy are unlikely in our view, as SThree’s unique combination of STEM and Contract focus continue to hold it in good stead. Although SThree is some way off its 52 week highs, it is now also some way off its lows, suggesting the more extreme cyclical concerns have now been priced in. Dividend growth remains a positive catalyst. SThree continues to trade at a material discount to the Staffing peer group (FY19E PE of 9.1x, 5.1% yield) despite keeping pace with its more cyclical peers.

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  • 24 Jun 19
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Next Fifteen Communications Group
Final results in-line; organic growth and margin expansion

Next Fifteen (“NFC”) has delivered another set of robust final results; in-line with our, and market, expectations. Consistent with prior years; revenue growth (14% headline and 6% organic) and margin expansion have been driven out of the UK. NFC has a good track record of taking advantage of strength in one part of the portfolio to address challenges elsewhere. It is now the turn of the North American roof to be fixed while the UK sun is shining; with the Text / Bite merger the main news item in North America. NFC has also taken the opportunity to disclose its performance by business line as well as geography. This added clarity should help investors better understand the key digital growth drivers. NFC continues to trade on undemanding multiples compared to the peer group and the outlook commentary speaks of confidence for FY2020.

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  • 02 Apr 19
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