Recruiter SThree cuts profit outlook for FY26, shares tumble

(Sharecast News) - Recruiter SThree maintained its profit outlook for FY25 on Tuesday but cut guidance for FY26 as it reported a drop in third-quarter net fees and said overall new business activity was set to remain challenging. In an update for the period from 1 June to the end of August, the company said group net fees fell 12% year-on-year to £81.5m "against a backdrop of prolonged challenging trading conditions".

SThree pointed out that this was a modest sequential improvement quarter-on-quarter, supported by a return to growth in the US during the period.

Fees in the contract segment declined 13% to £67.9m, reflecting continued softness in new placements, though this was partially offset by "resilient" contract extensions.

In particular, Contract in the US returned to growth this quarter, SThree said, helping to partially mitigate softer performances in both Germany and the Netherlands

Fees in the permanent segment fell 5% to £13.6m, but the company said there was a strong sequential improvement in the rate of decline compared to the second quarter, driven by growth in both the US and Middle East & Asia regions.

Contractor order book was down 6% year-on-year at £156m.

The recruiter reaffirmed guidance for FY25 pre-tax profit of around £25m but cut its outlook for the following year as it said "persistent softness" in new business activity was expected to impact FY26 pre-tax profit consensus by around £20m due to the group's operational gearing.

This, alongside the group's investment initiatives, is expected to result in a FY26 pre-tax profit of around £10m, versus consensus expectations of £30.5m.

Chief executive Timo Lehne said: "Our Q3 performance demonstrates a continuation of the positive momentum as reported at the half year across certain segments and markets. The group delivered a modest sequential improvement in net fee performance, driven by growth in our US and Middle East & Asia regions, and supported once again by strong extension rates. A key factor currently offsetting this growth, is the challenges within our two largest markets in continental Europe, Germany and the Netherlands, and our focus is on ensuring we are well placed for when these markets turn.

"More broadly, new business remains challenging, however, with a disciplined cost base reinforced by operational efficiencies, we remain confident in our ability to deliver on our FY25 PBT guidance. As we look further ahead, we are encouraged by pockets of improving momentum, however we have not yet seen a broader market recovery and, prudently, do not think this will start to materialise near-term, albeit not worsen."

At 1335 BST, the shares were down 20% at 148.60p.

Berenberg, which rates SThree at 'buy', cut its price target on the stock to 250p from 390p after the update.

"Assuming a moderate return to growth in FY27, and noting further investment into business efficiencies (funded through existing cost management), we expect a rebuild of profit before tax to £25m in FY27 (versus current forecasts for £35m)," it said.

"While a short-term frustration, as before we expect that as markets stabilise, operational efficiencies, productivity enhancements from SThree's Technology Improvement Programme (TIP), and the new exploration of agentic AI use should mean that SThree remains a long-term winner."