Specialist recruitment firm SThree PLC (LON:STHR) reported a 8% increase in gross profit for the first quarter as growth in international markets offset a weak UK job market.
The company, which specialises in recruitment services for the science, technology, engineering, mathematics sectors, said gross profit for the quarter through February rose to £70.3mln from £65.1mln the same period a year ago.
READ: SThree sees full year profit ahead of market expectations, driven by US and Europe
Growth was driven by Continental Europe, its biggest market, which delivered a 15% in gross profit to £40.3mln.
Gross profit in the UK and Ireland arm dropped 3% to £12.7mln as Brexit uncertainty dampened business confidence.
Elsewhere, gross profit in the US division edged up just 1% to £13.1mln but this reflected tough comparatives in the prior year. The Asia Pacific and Middle East regions achieved a 15% rise in gross profit to £4.2mln.
Contract recruitment remained its bread and butter with gross profit rising 11% to £50mln, compared to a 2% increase in permanent hiring to £19.8mln.
Most profits generated outside of UK
Conditions in Britain’s jobs market remain challenging for UK recruitment firms as employers are cautious about hiring due to an unclear economic outlook
However, about 82% of SThree’s gross profits are generated outside the UK and Ireland.
Chief executive Gary Elden said while the first quarter is the company’s “least significant” period it has made “an encouraging start” to the new financial year.
“Our focus on contract and the continued strength of our performance in Continental Europe and across key sectors leave us confident that there are good growth opportunities available for us this year,” he said.
Shares edged up 0.7% to 352.5p in morning trade.
Liberum says outlook for 2018 remains positive
Liberum reiterated a 'buy' rating on the stock and a 425p target price, saying it continues to see SThree as well-positioned to capitalise on current trends in recruitment given its "contract bias and geographic exposures".
"With growth in Continental Europe continuing to exceed our expectations, underlying gross profit growth of 8% in 1Q18 was marginally better than we had hoped," the broker said.
"Whilst the US performance was marginally weaker than expected, the strength in market fundamentals is expected to ensure momentum in 2Q and beyond improves.
"This, combined with signs that the UK may have reached a point of inflection, suggests that the outlook for FY18 remains positive."