Small Cap Value Report (Tue 25 July 2023) - QUIZ, TSTL, RCH, WIX, STEM, PIER, FA., YU., ECEL

Good morning from Paul amp; Graham.

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Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates amp; results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it’s anybody’s guess what direction market sentiment will take amp; nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £1bn. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed – please be civil, rational, and include the company name/ticker, otherwise people won’t necessarily know what company you are referring to.

What does our colour-coding mean? Will it guarantee instant, easy riches? Sadly not! Share prices move up or down for many reasons, and can often detach from the company fundamentals. So we’re not making any predictions about what share prices will do.

Green (thumbs up) – means in our opinion, a company is well-financed (so low risk of dilution/insolvency), is trading well, and has a reasonably good outlook, with the shares reasonably priced.

Amber – means we don’t have a strong view either way, and can see some positives, and some negatives. Often companies like this are good, but expensive.

Red (thumbs down) – means we see significant, or serious problems, so anyone looking at the share needs to be aware of the high risk.

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Lots of news today, so we won’t be able to cover all of this lot (especially if only in line, or very tiny mkt cap) -

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Summaries of main sections below

Quiz (LON:QUIZ) - 10.15p (£13m) – Final Results – Paul – AMBER

I review (reader requests) FY 3/2023 results, which looks quite good. Although current trading section concerns me, and looks like a £3m shortfall on profit vs LY. I struggle to see how that can be fully recouped in the rest of the year, so risk of a profit warning looks quite high. Balance sheet is strong though, and there should now be tailwinds from freight amp; forex. I’ll stick at AMBER for now.

Tristel (LON:TSTL) - 355p (pre-market) £168m – Trading Update – Paul – AMBER

An encouraging update, with buoyant demand, but greater than expected profit largely recycled into increased overheads. All eyes will now be on the US launch, after FDA approval in June. Valuation is demanding, so it needs to deliver considerable growth to justify the price.

Reach (LON:RCH) – up 9% to 74.5p (£244m) – Half-year Report (in line)- Graham – GREEN

Full year profits are expected in line: the consensus forecast for adjusted operating profit is an incredible £94.9m. I remind myself and readers of the pension deficit and the legal issues surrounding this company. It could be an interesting time to take a punt on this one.

Wickes (LON:WIX)

SThree (LON:STEM) – up 4% to 364p (£490m) – Results for H1 (in line) – Graham – GREEN

My favourite recruitment stock issues H1 results and confirms that it’s trading in line with full-year expectations. It’s tough for the company to show growth this year, as 2022 saw a bonanza in post-Covid recruitment. But the overall story here is very impressive, in my view.

Brighton Pier (LON:PIER) – down 28% to 41p (£15m) – Trading Update (profit warning) – Paul – AMBER/GREEN

This profit warning looks quite mild to me, and Cenkos confirms this with a modest downgrade to forecasts. Still expecting to be profitable in all 4 divisions. Tiny market cap now, so I see potential speculative upside, for special situations investors. Debt looks manageable, and Luke Johnson is the biggest shareholder, so something could happen maybe?

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Quick Comments - Fireangel Safety Technology (LON:FA.)

Down 28% to 3.1p (£9m) – Trading Update – Paul – RED

Another heavy loss for H1, and the recent equity fundraise which I mentioned on 7 June 2023 doesn’t seem to have been enough – it still has hefty net debt, and is over-stocked due to disappointing sales. I’m keeping my negative view of this one, and think there’s a very high chance of a zero outcome for shareholders. New management will need a miracle, and another placing, to sort this out, which doesn’t look likely at this stage unfortunately. I would resist the temptation to speculate (or average down) on this one, as risk:reward looks awful.

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Yu (LON:YU.)

Up 6% to 790p (£132m) – Trading Update – Paul – AMBER/RED

Yü Group PLC (AIM: YU.), the independent supplier of gas, electricity, meter asset owner and installer of smart meters to the UK corporate sector, is pleased to provide an update on trading for the six months ended 30 June 2023.

A very nice update today, with the key part saying -

As a result of the accelerating revenue profile of the Group and significantly increased EBITDA margin expected to be achieved in FY 23, the Group expects to report results substantially ahead of current market expectations.

Paul’s opinion – there’s no denying that the figures here look fantastic (and with an ahead of expectations update today on top) –

So maybe shareholders have found an amazing growth business?

Or, perhaps YU is just making bonanza profits due to the energy crisis, that won’t be sustainable?

That’s up to you to decide!

I went through the 2022 accounts here, and see a fair bit of risk, so it’s definitely not for me. But it’s been a great punt (so far) for risk-takers who backed it, thanks to the energy crisis. A 4-bagger in a year, is a remarkable outcome, and you could sell a quarter now, and run the balance for free! Very nice indeed.

This one reminds me a bit of all those covid multibagger shares back in 2020, most of which have come all the way back down again. So it’s always worth remembering to top slice, selling into the upward momentum, rather than watching it fizzle out, where a company hits a bonanza of trading due to external factors, that then reverses.

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Eurocell (LON:ECEL)

Up 1% to 115p (£128m) – Trading Update – Paul – AMBER/GREEN

Eurocell plc, the market leading, vertically integrated UK manufacturer, recycler and distributor of innovative window, door and roofline PVC products, provides the following update for the six months ended 30 June 2023.

Trading Update – In Line with Expectations

H1 sales down -2% vs strong comps.

Volumes 6% lower, so clearly some price rises have been put through to partially offset.

More staff made redundant to save £4m p.a. (after £5m saved in 2022 redundancies).

Outlook -

As previously highlighted, for 2023 we anticipate a heavy weighting towards H2, with sales returning to a more normal seasonality and profits in the second half benefiting from lower input prices (including raw materials and hedged electricity) and operational cost savings already implemented.

Taking the above factors into account, our expectations for the full year remain unchanged.

Net debt – only £15m, so not a worry.

ECEL has an excellent balance sheet, so is sturdy enough to cope fine in the current downturn I reckon.

Paul’s opinion – broker forecasts have come down in several stages already, and given the poor macro environment, it wouldn’t surprise me to have more forecast downgrades at ECEL and other companies in the building products sector.

So investors here need to have the stomach to endure the risk of another profit warning.

Then at some stage, the market starts to focus on the recovery potential, and the shares re-rate upwards again.

I remain bullish medium to long-term on this nicely financed company, but am half-expecting more disappointments in the shorter term. Hence I am watching from the sidelines, but I’d like to be in it for the medium term recovery, as with so many other cyclical shares.

So I think AMBER/GREEN seems best at the moment – i.e. some short term worries, but fundamentally a good business longer term.

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Paul’s Section: Quiz (LON:QUIZ)

10.15p (£13m) – Final Results – Paul – AMBER

QUIZ, the omni-channel fashion brand, announces its final audited results for the year ended 31 March 2023 (“FY 2023″).

Quiz focuses on special occasionwear, and still has a network of physical stores, as well as a well-developed online offering. It jettisoned the problem shop leases in a CVA in 2020, moving largely onto flexible turnover rent leases (although note 11 shows that rents are now about half fixed, and half turnover-related).

Management are experienced rag traders, and still own stakes which give them effective control.

My earlier comments so far in 2023 have been these two -

17 Jan 2023 – GREEN – 16p – “at least in line” TU for FY 3/2023. £9.2m cash. Thumbs up.

17 Apr 2023 – AMBER – 11.7p – £2.0m PBT expected FY 3/2023. £6.2m net cash. Cautious outlook, and softer recent trading.

Results for FY 3/2023 were published on 5 July 2023, and several readers have asked me to review them, which we didn’t have time for at the time, so here goes.

Key numbers -

Revenue £91.7m (up 17%) – a good recovery, driven by the first year with no covid disruption.

Gross profit of £56.5m an impressive 61.6% gross margin – a key strength.

Profit before tax £2.3m (up 192%) – not bad in a really tough sector, but nothing like the heyday when Quiz floated, when it was achieving profit of c.4x this level – another very well-timed float (for the sellers!), in mid-2017.

Clean, simple numbers, with no adjustments, so very easy to understand.

EPS 1.64p (flat against LY, which was boosted by a tax rebate), PER 6.2x

Directors pay looks OK, not excessive, at £697k (note 4). Also note share based payments are very modest at only c.£50k p.a.

No dividends.

Balance sheet - looks healthy. NAV £20.9m. Deduct £2.7m intangible assets, and NTAV becomes £18.2m – which is plenty for the size of business. This includes cash of £7.6m, less £1.4m in bank borrowings, so net cash of £6.2m.

With revenues of c.£92m, I would expect the cash figure to move around a fair bit, so there’s nothing to be gained from over-analysing movements in cash, in my view. It’s in a healthy overall position.

Cashflow statement - looks good. Net operating cash generation was £5.9m, but boosted by a £417k tax refund, and of course this needs to be adjusted for £1.8m lease payments further down. Capex shot up, from £290k LY, to £1,965k this time.

Overall, this remains a reasonably cash generative business, so I think it should be able to pay divis at some stage. A 5% yield would cost £650k pa, which I think the company could afford, so that would be a good question to ask management – why no divis, and when will they start rewarding shareholders?

Outlook - soft recent trading – Q1 (3m to June 2023) saw a 15% decrease on LY – blamed on macro factors, and strong LY comps.

3 new stores opened since year end. Bank facilities renewed to June 2024, and increased to £4.0m (prev. £3.5m). Net cash £3.7m recently, at 4 July 2023.

During H2 the trading environment is expected to remain challenging, albeit the Group has softer comparatives in the second half of the financial year. Reflecting the uncertainty with regards to consumer demand and inflationary cost pressures, the Board currently anticipates that profit before tax for current year will be similar that generated in the past year.

Longer term the Board remains confident the Group will deliver sustainable and profitable growth

So it’s guiding for about £2.3m profit this year FY 3/2024, which I’d say would be a reasonable outcome, given tough macro amp; consumer sentiment. Plus of course very tough online competition, in particular from the aggressive Chinese direct to consumer websites, especially Shein.

Costs are expected to increase, including utilities (fix ending), and wages.

Paul’s opinion – Quiz is a resilient business that has outlasted many of its now defunct competition. So there’s less competition for its physical stores, and the customer returns rate is low for physical stores (whereas online is plagued by high returns, and all the costs of dealing with those).

My hunch is that the risk of a profit warning could be medium-high here. The reason being that FY 3/2024 has started badly, with revenues down £4.1m in Q1 alone. At a gross margin of c.62%, that’s £2.5m reduced gross profit. Overheads will be increasing, so the total profit squeeze in Q1 alone could be c.£3m. I find it difficult to believe that Quiz can make that up in the rest of the year. So I’d be expecting a profit warning at some stage, and maybe a result around breakeven for FY 3/2024. For that reason, I’m not keen to buy back in here.

On the upside, the balance sheet strength, and nice cash position, means risk is limited.

There should also be upside from reduced freight costs, and the recovery in sterling making input prices cheaper. So expect good gross margins to continue, or increase.

Overall, it’s got to remain at AMBER I think.

Note the StockRank is upper-medium, propped up by strong value scores.

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Tristel (LON:TSTL)

355p (pre-market) £168m – Trading Update – Paul – AMBER

Tristel plc (AIM: TSTL), the manufacturer of infection prevention products, provides a trading update for the year ended 30 June 2023, ahead of its Open Day for shareholders being held today.

“Very robust” demand in “all key geographical markets”

FY 6/2023 revenues £36.0m, up 16% on LY, and ahead of market consensus.

Adj PBT “slightly ahead of consensus forecasts of £6m”

Cash £9.5m (up £0.6m vs a year ago)

Reminds us that it got FDA approval in June 2023, has begun manufacturing amp; marketing

Management sound excited -

“Looking forward to the years ahead, I am confident that Tristel will truly become a leading global player in the infection prevention industry. We now have access to the world’s largest ultrasound market for our high-level medical device decontamination products and we have an exciting pipeline of new product innovations supported by a strong balance sheet. We are very excited about the prospects for further growth and the outlook is positive.”

Broker update – many thanks to Finncap, which issues an update note. Profit expectations haven’t changed, because it looks as if Tristel is recycling the extra gross profit into increased overheads.

Latest forecasts are 9.9p adj EPS for FY 12/2023, and 12.4p for FY 12/2024.

PERs are 36x, and 28.6x

Paul’s opinion - same as usual – a nice company, but valuation seems fully up with events.

The USA expansion is finally happening, so if that takes off, then the company could grow into the valuation.

Good demand in all major markets is clearly a positive announced today.

As I don’t know whether its products will take off in USA or not, then I have to stay neutral, AMBER. That’s the deciding factor, and if it’s good news, I could see this share possibly recovering to previous highs. If the sales in USA disappoint, then the shares would probably lurch down. We’ll have to wait and see what happens!

I imagine today’s news should give TSTL shares a maybe 5-10% boost today, at a pre-8am guess (for fun!).

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Wickes (LON:WIX)

Up 6% to 135p (£350m) – Trading Statement - Paul – GREEN

Wickes operates from its network of 230 right-sized stores, which support nationwide fulfilment from convenient locations throughout the United Kingdom, and through its digital channels including its website, TradePro mobile app for trade members, and Wickes DIY app. These digital channels allow customers to research and order an extended range of Wickes products and services, arrange virtual and in-person design consultations, and organise convenient home delivery or click-and-collect.

This sounds reassuring -

Improved second quarter drives positive first half LFL performance; full year expectations maintained

Revised capital allocation policy supports a maintained dividend and £25m share buyback programme

Full year guidance -

On a Pre-IAS38 Adjusted PBT basis, the Company is comfortable with the market consensus for FY2023, being a range of £54.5-57.0m.

Q2 LfL sales improved to +3.0% (was -1.8% in Q1), still well below inflation though.

H1 LfL sales were +0.7%

I can’t see any benefit from the company splitting out “core” and “DIFM” (do it for me) sales figures.

Inflation – it’s not entirely clear if this is talking about input cost inflation, or selling price inflation? Probably selling prices I would guess -

Inflation continues to slow, in line with our expectations, falling from 9% in the first quarter to 4% in the second. Wickes continues to retain its strong price position relative to the sector.

Cost inflation – sounds reassuring -

Costs remain well controlled, with savings flowing through as expected in distribution, logistics and store operations.

It doesn’t say anything about gross margin, which is surprising. I would imagine that importing a large quantity of bulky items would have seen big benefits on margin through reduced sea container freight.

IT spending – big upgrades are planned, and it says this will mostly be expensed through the Pamp;L, rather than capitalised -

IT project investment is anticipated to be c.£17m in FY2023 and grow to c.£25m per year from FY2025…

The impact of this switch from capex to opex for some investment costs will have no effect on future cash flow. For four years PBT will be reduced until the higher IT opex is fully offset by lower IT amortisation costs. We estimate the impact on PBT to be £8-10m in FY2023, £6-11m in FY2024, £4-7m in FY2025 and £1-3m in FY2026;

That’s obviously going to result in broker forecasts dropping, or they might have already factored this in? I can’t find any broker research unfortunately, so am in the dark on this point.

Capital allocation – various points made, including saying that it won’t need to use its RCF, expects to be in net cash throughout the year. More scope for paying divis, by adopting a broader range of dividend cover from 1.5x to 2.5x adj EPS (previously 2.5x cover).

Dividends – maintaining 10.9p total divis for FY 12/2023, giving a sparkling 8.1% yield.

Intention to hold the payout at 10.9p until cover returns to normal. There’s obviously some risk there, that a downturn in trading could scupper future divis, but they say they’re confident.

Share buyback of £25m announced today – that’s a lot, coming on top of a generous yield, and for a £350m market cap that implies buying back about 7% of the existing shares.

Paul’s opinion – I think this is really encouraging, and the big yield + meaningful buybacks, reinforces that this is a decent business, well financed, and whose shares seem cheap.

It’s one of my favourite value shares, and that remains the case, so a thumbs up.

Let’s hope the diversity amp; inclusion manager keeps his trap shut in future! Most people don’t want companies to broadcast their virtue-signalling. Just treat everyone fairly, and then there aren’t any problems either way. And never, ever, insult your customers! (even if it is taken out of context). So I hope WIX has learned from its recent communications debacle.

Good fundamentals, a cheap valuation, generous divis/buybacks, and a chart that’s looking nice too – lots to like here!

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Brighton Pier (LON:PIER)

Down 28% to 41p (£15m) – Trading Update (profit warning) – Paul – AMBER/GREEN

Brighton Pier Group PLC, a diversified UK leisure and entertainment business, provides the following trading update for the first half of its present financial year (26 week period ended 25 June 2023).

Profit warning -

The combined effect of these lower sales with the inflationary cost pressures are expected to result in earnings after tax below market expectations….

all four of the Group’s divisions will remain profitable for the full year despite the challenges…

The Board’s short to medium term outlook remains cautious.

Q1 was in line, but Q2 “more difficult”, blaming consumer confidence, and decline in disposable incomes.

H1 sales c.£16.2m

Operating margins hit by higher costs (esp. food/drink, and staff costs).

Reduced footfall.

Recent trading in July 2023 hit by poor weather, train strikes, and hotel fire opposite the entrance to Brighton Pier (1 week’s disruption).

Broker update – this is the bit where we often see a huge drop in forecasts. However in this case, I’m pleasantly surprised by how little Cenkos’s analyst Peter Renton (many thanks!) has cut the FY 6/2023 numbers by. He’s saying £5.5m adj EBITDA, down £1.0m on previous forecast, and a still-profitable adj PBT of £0.8m. Assuming that’s realistic, then it’s not a disaster by any means.

Paul’s opinion – I wouldn’t reject PIER out of hand at all. The balance sheet isn’t bad, and PIER de-geared a fair bit during the pandemic. This profit warning today isn’t a calamity, just a little worse than expected – hardly surprising in the current circumstances. Performance could improve once the squeeze on disposable incomes ends. 

Hence I think the big reduction in share price could bring this share into buying range, for patient investors who are prepared to wait for a macro recovery. 

Or a takeover bid – Brighton Pier is a fairly nice trophy asset, and with the whole group only valued at £15m now, someone might try to snap it up. Luke Johnson owns 27% I see.

As a special situation, I think this share is now looking quite interesting, with speculative upside potential. Liquidity and a wide spread are probably the main impediments to getting involved in this share.

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Graham’s Section: Reach (LON:RCH)

Share price: 74.5p (+9%)

Market cap £244m

This is the tremendously “cheap” newspaper publisher. The market has decided that it’s a value trap, but maybe it’s a cigar butt with a few last flavoursome puffs to give?

It had quite the spike during the Covid rally, and is now back in the doldrums:

Today we have interim results. The main point is that full-year profits are still expected to be in line.

Revenues declined 6% to £279m with the only bright spot being print circulation revenue, i.e. newspaper sales. This is still the largest driver of revenue and it increased by a few percentage points.

Strangely, this occurred despite newspaper volumes actually falling by 18%. Reach increased the price of newspapers so much last year that it is able to deliver nominal revenue growth even as volumes declined. It also sold one-off specials, e.g. celebrating Wrexham’s promotion to League Two.

Digital revenue on the other hand fell by over £10m to £61m. Facebook made a decision to de-prioritise news content and of course there is nothing Reach can do about that. Just another reminder that many small companies live or die depending on the decisions of the tech giants! They are trying to grow more revenues where they are in control of the relationship with the reader, but they still have a long way to go on that front.

Operating profit fell by a significant percentage whether we are looking at “adjusted” operating profit (£36m, down from £47m) or the actual result (£11m, down from £34.5m).

Adjustments are made up of:

• Provision for historical legal issues £6m. Reach now has £45m set aside in these provisions. I think it is reasonable to adjust these out, as this problem must surely conclude soon?

• Restructuring charges in respect of cost reduction measures £10m. Restructuring looks like it could be an ongoing story here (£5m restructuring charges last year) so I would not adjust out all of these costs.

• Pension administrative expenses £2.6m. These are an ongoing cost so I would not adjust them out.

• Other items £5.6m, mostly to do with the “historical legal issues”. I would adjust most of these out.

All told, the company treats £24m of costs as adjusting items. For me a more reasonable figure is £10m.

I would therefore be happy to say the underlying operating profit is around £21m (£11m actual operating profit plus £10m of adjustments).

This is a matter of opinion, of course. It depends on your view on what will happen in future periods – will restructuring costs go away? Will the company need a lot more provisions in relation to phone hacking? I’m just giving my opinion on what seems reasonable to me.

Based on my view that underlying operating profit was around £21m during a difficult H1 period, the shares undoubtedly look cheap in relation to current earnings.

Outlook – H2 will be stronger as newspaper prices increased during H2 of last year, so those increases are still being annualised. In digital, there will also be “less demanding second half comparatives”.

Operating costs should be down 5-6% with savings from cost reduction measures being weighted to the second half.

The High Court trial around historical legal issues has concluded.

Market expectations are for adjusted operating profit of an incredible £94.9m.

Net debt – currently just £3.5m, and it’s expected that there will be a “small net debt position” at year end. There are also some leases (not too big). The company has access to a £120m RCF which should mean there are no liquidity issues for the time being.

Balance sheet – net assets of over £600m, but net assets are negative if you strip out intangibles. That’s unfortunate because it means that the company doesn’t have assets set aside, e.g. to pay its legal provisions. It will have to borrow to settle these liabilities.

Pension deficits need to be considered. Work is being carried out on a new valuation of these deficits (this is done every three years). There are some very scary numbers in this section – one of the pension schemes is said to have had a deficit of £476m in December 2016!

But I think this is the key paragraph for the time being:

At the prior year end, the funding deficits in all schemes were expected to be removed before or around 2029 by a combination of the contributions and asset returns. Contributions (which include funding for pension administrative expenses) are payable monthly. Contributions per the current schedule of contributions are £55.8m pa in 2023 to 2025, £56.7m in 2026, £54.7m in 2027 and £8.6m pa in 2028 and 2029.

I’ll ignore the time value of money for just a moment and add up all of the contributions for 2023 to 2027. They give us total contributions of £280m. Or we can round it up to £300m if we include the contributions to 2029.

Perhaps the most reasonable course of action, as investors, is to simply add up all of these scheduled contributions to the Reach market cap? Based on the latest share price, that gives an “enterprise value” (market cap plus pension contributions) of £540m.

Graham’s view

Maybe I just woke up in a good mood this morning, but I think I’ll give the stock the thumbs up today. The company’s brands are household names and it has a good track record of generating the cash needed to pay for its many liabilities.

I also think it’s possible that the upcoming valuation of the pension deficit could bring good news, with higher interest rate assumptions.

Not much has changed since I looked at the stock in May but the shares are a little cheaper now, and I think it’s possible we are reaching an inflection point where the pension deficit and the legal issues might become less troubling. In a year or two, the company might have settled its legal costs and paid another £100m+ into its pension deficit. What would investors worry about then?

This is a high-risk stock and resembles a “punt” more than a solid investment. But it’s intriguing.

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SThree (LON:STEM)

Share price: 364p (+4%)

Market cap: £490m

SThree plc (‘SThree’ or the ‘Group’), the only global pure-play specialist staffing business focused on roles in Science, Technology, Engineering and Mathematics (STEM), today announces its financial results for the six months ended 31 May 2023.

We already had the H1 trading update and reported on it last month.

The main points from H1 are:

• Like-for-like net fees down 2% (£209m)

• Like-for-like operating profit down 22% (£38m)

• Like-for-like PBT down 20% (£38.5m)

The post-Covid conditions of 2022 are seen as a difficult comparative: fees rose 25% last year. So it was always going to be tough to match that.

If you take a step back from the year-on-year comparisons, the overall trajectory here has been excellent:

I also believe that SThree has in a sense allowed its net fees to decline, as it has been focusing its investment in the steady income provided by contract recruitment. This has steadily risen and is now responsible for 81% of net fees.

Permanent recruitment revenue (now only responsible for a fraction of total revenues) fell by 19% during the period, reflecting the post-Covid decline in demand from the Life Sciences sector, but also I believe reflecting SThree’s preference to invest in contract recruitment.

They have net cash of £72m: in my experience they have always had a strong balance sheet, but this must be a record when it comes to the company cash balance.

Outlook: trading is in line with market expectations.

Macro conditions continue to be varied as we enter the second half, however contract extensions remain strong as our customers seek to retain scarce skills to ensure they do not jeopardise future growth prospects. Furthermore, in June we saw a modest improvement in new placement activity, which itself was slightly ahead of the second quarter average. It is too early to know whether this is an improving trend, but we will continue to monitor and respond to activity levels over the coming months.

2024 ambitions: the company has a range of financial and non-financial KPIs. From a financial point of view, the goal of a 21% operating profit margin in the medium-term seems just out of reach for the company. They achieved 18.3% in H1 but say that the economic headwinds will “dampen margin progression in the short term”. 18% is still a reasonable level, so I doubt that investors will be too upset by this!

Graham’s view

I gave six reasons to like SThree shares last month, and nothing has changed. We can see that there is some pressure on profitability, which is not really a surprise given that revenue growth has paused.

Stockopedia tools show that the overall trend for EPS estimates is ok:

I am therefore maintaining my Green view on these shares. I’m not a recruitment specialist by any means, but this is my favourite recruitment stock. It earns good returns, is reasonably priced, and is shareholder-friendly, paying regular dividends for very many years. What else can we ask for?

 

Stockopedia

Source: https://www.stockopedia.com/content/small-cap-value-report-tue-25-july-2023-quiz-tstl-rch-wix-stem-pier-fa-yu-ecel-972494/