Specialist recruiter SThree PLC (LON:STHR) raised its final dividend for the first time in seven years as 2018 profit beat market forecasts, led by growth in its overseas markets.
The company, which provides recruitment services to the science, technology, engineering and mathematics sectors, said adjusted pre-tax profit rose 20% to £53.4mln in the year to 30 November 2018 from £37.7mln a year ago while adjusted revenue gained 13% to £1.23bn.
READ: Recruiter SThree posts higher gross profit as international growth offsets weak UK performance
Consensus forecasts were for adjusted pre-tax profit of £49.0mln to £51.4mln.
Gross profit, a key measure of performance for recruiters, grew 12% to £321.1mln.
Continental Europe the star performer
The Continental Europe business, the company’s largest market, was the key driver of growth with gross profit up 20% to £183.3mln, boosted by a strong performance in Germany and the Netherlands. Continental Europe now accounts for 57% of total gross profit.
The group’s second largest market, the US, delivered an 8% rise in gross profit to £66.7mln, representing 21% of the total.
The Asia Pacific and the Middle East region, which makes up 5% of total gross profit, grew 11% to £18mln, driven by Japan.
UK and Ireland hit by Brexit uncertainty
However, the UK and Ireland division saw gross profit drop 5% to £53.1mln as employers exercised caution on hiring decision amid uncertainty surrounding Brexit. The region accounted for 17% of total gross profit.
To address the weak performance in the UK and Ireland, the company restructured parts of its permanent job placements business by consolidating into key hubs and shaking up management. SThree said these actions led to a 7% rise in productivity in the permanent business. Total UK productivity, including contract and permanent, was up 5%.
Good start to 2019 trading
"The group continued to make good progress throughout 2018. This resulted in a strong financial performance which, demonstrating our resilience, was delivered despite the ongoing macro-economic and political uncertainties,” said chief executive Gary Elden.
"Looking forward to the year ahead, our post-year end trading is in line with expectations and we remain well positioned to benefit from the growth opportunities in our chosen STEM markets."
Dividend hike a 'key highlight'
SThree raised its final dividend by 4% to 14.5p. The group ended the year with net debt of £4.1mln, compared to net cash of £5.6mln a year ago, largely due to £11.5mln in costs related to the UK restructuring.
Liberum maintained a ‘buy’ rating and raised its target price to 475p from 450p, saying the key highlight for the results was the 4% hike in the dividend.
"In addition to reflecting a strong set of FY18 results, this points to a positive outlook for the group and acts as a reminder of the cash generative nature of its contract book and the structural opportunities in the STEM markets in which it operates," the broker said.
"Although we acknowledge the risks created by broader macroeconomic uncertainties, we believe that these are now more than discounted and reiterate our BUY rating and increase our target price to 475p (from 450p)."
In morning trading, shares rose 2.9% to 280p.