IWG, which is what we must now call Regus, the provider of temporary office space, went through a transformative year in 2016, which was reflected in a volatile share price. Up 5¾p at 330½p, the shares are only now back to where they were last August and are still well below their peak of above 350p at the end of 2015.
The change in strategy was twofold. The company switched to a lower-cost operating model and fewer layers of management, which saved about £100 million a year. It is increasingly going down the partnership route, co-investing with existing property investors rather than going it alone.
At the same time Mark Dixon, the founder and chief executive, sold shares worth about £100 million in the autumn. He retains a holding of more than 28 per cent, but such sales inevitably rattle the market.
The changes in operational practice meant that revenues from the mature estate, the measure that IWG uses, were heading in the wrong direction, a 6.1 per cent fall in the fourth quarter of last year. All this was well signposted to the market and the equivalent decline in the first quarter was 2.5 per cent, with a return to growth expected this quarter or next.
The company has always focused on return on investment as a main measure of performance and, with £130 million being invested in the current year on that capital-light partnership model, this can only improve. A return in the first quarter of 21.9 per cent is up from 21.5 per cent in the corresponding time in 2016.
Some might think that the dividend yield, at below 2 per cent, is quite low for a specialist property company. IWG is still strongly cash-generative and has embarked on a share buyback programme, with about £13 million spent in the first quarter. Expansion is coming from the core estate, which continues to use the Regus brand, and in its Spaces business aimed at the younger, more techie crowd — jeans and T-shirts rather than suits and ties, as Mr Dixon puts it.
The move towards the use of temporary workspaces can only continue and, with only about 16 per cent or so in the UK today and expansion coming in markets such as China, further growth is guaranteed. The shares sell on 18 times earnings and seem fully valued at present.
My advice Hold
Why The transformation to a lower-cost, capital-light business is over, but this seems to be reflected in the share price
RPS Group
When half of your revenue comes from advising the oil and gas industry on new projects, you will have had a lean couple of years. RPS, an international consultant with a market capitalisation of almost £600 million, has been successfully redeploying its staff into other infrastructure work. Oil and gas is now less than 10 per cent of the business, which is as well because no one expects the oil price to budge much from its $50-plus level for a while.
RPS has indicated a return to the acquisition trail after a year’s hiatus, the last deal having pushed borrowings uncomfortably high last summer. The company is hugely cash-generative. It also has a three-part regional structure that allows individual managers latitude in doing deals.
That dependence on oil and gas had led to fee income shrinking, but this is beginning to turn up. The shares were tipped here at the start of last year at 178¾p. They have made good progress since the end of 2016 and added 10¾p to 265p after a reassuring annual meeting statement. They sell on 15 times earnings while the yield, one of the attractions then, is less impressive. Fair value, therefore.
My advice Avoid
Why Shares have recovered strongly so far this year
Bovis Homes
It would have been pretty unthinkable after the housebuilder turned down takeover approaches from Galliford Try and Redrow if the first action by Greg Fitzgerald, the new chief executive of Bovis Homes, was to cut the dividend. About the only firm news from his first trading statement, then, was that this year’s payment would at least be maintained at 45p.
This means that the shares, which surged by 25p to 945½p, offer a yield of almost 5 per cent, not the best in the sector but providing a degree of support. Mr Fitzgerald and his family have indicated their confidence in the future of Bovis by buying shares worth almost £1.4 million, while all his bonuses will be in shares henceforth.
The problem is that Mr Fitzgerald’s review of how to take Bovis forward will not arrive until September, which seems a long time. The company, given the scandal over paying buyers to move in early to meet growth targets, is holding back on releases of new homes and the sales rate is running at about half the level recently reported by at least one rival.
The first-half figures will take an inevitable hit, then. Bovis is assuming that completions will run this year at between 10 per cent and 15 per cent below last year’s levels. The trading environment otherwise is positive enough, as seen in other recent updates.
The shares by most measures look cheap against the rest of the sector, but they remain a speculative investment until the future is clearer.
My advice Avoid
Why Still too many uncertainties over the future
And finally . . .
Looking at Tharisa, one of the few companies in the mining sector to come to the market over the past couple of years, last month we concluded that the shares were too much of a play on the price of chrome. They barely shifted after an unexpected update, which said that increased chrome prices achieved in the first half to March 31 meant that interims would come in ahead of expectations. The price has been rising after China, the biggest consumer and Tharisa’s only customer, stopped running down stockpiles of the metal.
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