Why these service sector stocks are a good buy?

The UK service sector continues to witness strong growth in business volume in the three months to November 2021. According to the latest survey by the Confederation of British Industry (CBI), a trade organisation for UK-based businesses stated that firms belonging to business and professional and consumer services have reported improvement in sentiment.

The companies from the service sector witnessed a significant rise in costs, up by 56%, during the period, the fastest rise in cost since 1998 when the survey began. However, despite the increase in the cost, the profitability for the companies remains intact and has witnessed strong growth since February 2018. The current scenario of high cost and profit growth is expected to continue for both consumer services and business and professional services.

The business spending by the firms from the consumer services and business and professional services improved during the quarter along with growth in employment. Firms expect to increase their spending and investment over the next year, particularly on IT infrastructure, land and buildings, plants and machinery.

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Let us look at FTSE listed service sector stocks that can be considered for investment:

Capita Plc (LON: CPI)

FTSE 250 listed company provides the business support services like consulting, software, and digital service to its clients from the private and public sector. For the six months to 30 June 2021, the company reported revenue of £1,584.7 million. Its adjusted profit before tax rose by 508% to £45.3 million, mainly due to the cost transformation program, which resulted in good productivity and efficient delivery. In addition, the company’s half-yearly revenue was in line with the expectations. The total value of the new contracts won by the company during the period increased by 70% to £2,576 million.

Capita Plc’s current market cap stands at 759.78 million as of 30 November 2021. The stock has given a year-to-date return of 11.8% to its shareholders.

Mitie Group Plc (LON: MTO)

The company operates as a leading facilities management service provider in the UK. It offers a range of strategic outsourcing services to its clients. The company reported a revenue of £1,872 million, while its operating profit was £60 million for the six months ended 30 September 2021. The total value of the new contract including renewals, new contracts, and projects, rose to £1.8 billion during the period. As a result, the company resumed its dividend payout with an interim dividend of 0.4p per share.

Mitie Group Plc’s current market cap stands at 939.60 million as of 30 November 2021. The stock has given a year-to-date return of 56.1% to its shareholders.

SThree Plc (LON: STEM)

The company provides permanent and contract staffing services to its clients in the UK and other countries. The company continues to witness strong demand for its services amid global economic recovery. As a result, it reported a 29% growth in net fees collection to £91 million, driven by the growth in its key markets of Germany, the USA, and the Netherlands.

SThree Plc’s current market cap stands at 698.8 million as of 30 November 2021. The stock has given a year-to-date return of 74.1% to its shareholders.