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SThree

Business model resilience against an uncertain outlook

The final results did not contain any surprises but did provide more colour around the trading outlook. The strong exit momentum was confirmed; especially in key overseas markets, which helps to underpin H1 visibility. However, despite positive momentum heading into 2019, SThree is having to contest with poor macro data coming out of the Eurozone, and Germany in particular. Past experience suggests SThree’s unique combination of STEM and Contract focus should hold it in relative good stead. SThree has been subject to a Bull/Bear tug of war since the start of Q4 2018. Although SThree is still some way off its recent highs, it is now also some way off its lows, suggesting the more extreme cyclical concerns have now been priced in. The return of SThree to dividend growth is also a positive catalyst. SThree continues to trade at a material discount to the Staffing peer group (FY19E PE of 9.4x, 5% yield) despite strong operational performance and late cycle attractions.

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  • 15 Feb 19
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Next Fifteen Communications Group

Trading update and Acquisition of Planning-inc

In what has felt a febrile market, the recent pre-close trading update was reassuringly brief and solid. Life continues largely as normal for Next Fifteen. Acquisitions made over the last few years are delivering strong growth; providing management with a good opportunity to actively manage the North American portfolio; where the Text100 and Bite agencies are being merged. The acquisition of Planning-inc continues the wellestablished pattern of NFC paying attractive initial multiples for fast growing and profitable digital marketing assets, often with highly specific and niche applications. NFC’s track record here speaks volumes to the focus and rigour of management’s approach. The NFC forward PE has come down a notch or two (alongside the peer group) and currently stands at 13.8x on a Calendar 2019 basis. We believe this reflects a moderation of market risk appetite rather than a specific judgement on NFC.

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  • 11 Feb 19
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SThree

Q4 update – Not all doom and gloom

In amongst the gloom, the SThree Q4 trading update was a reassuring piece of good news with the company flagging a strong end to FY18 and an outcome above the top end of expectations. The departure of the CEO, Gary Elden, was a surprise but on the flip side; new leadership will create new opportunities for a group with considerable global reach, scale and management depth. So where is the valuation now, following a poor month for cyclical equities in general? On our revised estimates, SThree now trades on a FY18 PE of 9.5x, falling to 8.6x for FY19E. The dividend yield is 5.1%, covered more than 2.0x. Based on market consensus, SThree trades at a 24% PE discount to the immediate peer group. Given the positive trading commentary and the strong start to FY19E, any potential bad news looks more than baked into the share price.

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  • 20 Dec 18
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SThree

Initiation of coverage – Wheels still on

A cursory glance at the share price chart and the peer group valuation discount might suggest the wheels have come off the SThree story. The reality is much more interesting. Instead we find a specialist STEM business; with leading positions in specialist markets (mostly overseas with better growth prospects than the UK); focused on growing a Contract business displaying highly attractive and resilient economics. Investors concentrating on superficial comparisons with very different UK peers will undoubtedly find their higher ratings more comforting. SThree requires more thought. Before recent price falls, SThree had been performing well off the back of positive trading commentary, H1 results and earnings upgrades. In our mind, not much has changed. SThree is well positioned to outperform its more generalist peers due to late cycle positioning and resilient characteristics. Near term growth prospects are good and the dividend is at an inflection point. All to be had at a PE of 9.9x, a near 30% PE discount to its peers and a 5.1% yield.

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  • 21 Nov 18
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Next Fifteen Communications Group

H1 Results – Ahead of Expectations; Further Upgrades

Next Fifteen (“NFC”) has released good H1 results; delivering healthy 9% group organic revenue growth, 25% EBITA and EPS growth and a 20% hike in the interim dividend. The UK has replaced North America as the prime driver of group growth, especially at the profit line, where performance was ahead of our expectations. North America was more subdued, although organic revenue growth was still a healthy 7%. The interims underline the importance of the UK restructuring and refocusing that has taken place over the last four years. The acquisition of fast growing, higher margin innovative and digitally focused businesses are now making a material contribution to the group bottom line. The NFC share price has continued to perform well through 2018 yet the valuation still does not feel stretched at a PEG of c.1x.

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  • 25 Sep 18
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Next Fifteen Communications Group

Final Results – Strong H2 organic growth; good start to the new year

NFC’s full year results did not contain any surprises following the January trading update. The key point was the continuation of the H2 high single digit organic revenue growth into the first two months of the new year. Whilst this by no means guarantees the full year outcome; it is a good start and underpins current year expectations. If this momentum is maintained and barring no further material FX volatility this suggests current year estimates could be conservative. NFC shares are currently trading near all time highs, which is no great surprise given the strength of the group’s performance over the last four years. Yet, the valuation does not look stretched relative to the peer group despite a superior track record and future growth outlook.

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  • 20 Apr 18
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