Workspace has come through a torrid if predictable year of lower occupancy and rent per square foot, producing its first loss since the financial crisis. Trading profit was halved, asset value was clipped by a tenth, net assets per share were down 13.8 per cent and the year’s dividend fell from 36.16p a share to 17.75p after the interim was passed altogether.
That package disappointed the stock market, which took the shares down 29½, or 3 per cent, to 883p. But the real story is about the future.
The company sprang from Margaret Thatcher’s dismemberment of the Greater London Council in 1987 and the vast estate of empty offices that were thrown up by that. Most of its branches are on the east side of the capital, but it stretches to Chiswick in the west and Kennington in the south.
The company is in what is known as the flexible office space market, which has been seen as something of a poor relation to the traditional grand schemes letting millions of square feet to premier tenants.
But while things are very much up in the air in what we all hope are the last throes of the pandemic, there is reason to believe that flexible offices may be the right niche to be in over for the medium term. The problem, as the company admits, is that no one yet knows how Covid-19 really will affect long-term attitudes to work. It has, of course, asked its customers, who suggest that two days a week at home may become popular and only 12 per cent say that they plan to take less space than before. But they don’t really know.
Workspace is firmly aimed at small businesses and start-ups that do not want to commit themselves to huge overheads. They may all need to be in the same room more than the staffs of bigger concerns. The firm’s clean, well-designed spaces, available from as little as 160 sq ft for a day, seem to fit whatever the new normal may turn out to be, but it may have to tolerate even more customer indecision than before.
Its leadership, in the shape of Graham Clemett, the chief executive, comes over as perhaps a touch short of adventure. A died-in-the-wool finance director, he was steeped in the clearing bank culture before he stepped up.
That has been a virtue in the past 15 months, but may be less alluring if there really is to be a full-blooded economic breakthrough in the next few years. A key yardstick is that Workspace’s fortunes tend to move in line with gross domestic product, and the latest forecasts there are promising.
It has stayed true to its London roots, which, after 34 years, may say more about management caution than anything. However, the company reckons it has more than enough to go at in London, as it has only 3,000 customers out of a target audience of 100,000 small businesses. So far there has been no hint of turning any of Workspace’s offices into flats, as some have speculated may be the future for city centres. It does provide peripheral services such as cafés, gyms and bike racks, which in other hands might be potential additional profit centres.
There is scope for taking advantage of the present fog to establish a clear vision for the next decade, which would go a long way in this case.
Despite yesterday’s relapse, the shares have made solid progress from 482p last September. On the halved dividend, the yield is a none-too-attractive 2 per cent. The management is alert to the need to return to the previous 36p annual payment, which would take the yield close to a respectable 4 per cent.
Nicholas Roditi, the former George Soros lieutenant, has a 29 per cent stake, which might become the base for a future takeover by him or someone else if Workspace falters.
Advice Buy
Why The worst is probably behind the firm
Pennon
Pennon pleased shareholders yesterday with a 355p-a-share return of capital now, a possible 88p to come on top of that and the promise of a sector-beating dividend policy.
The investment case is now clear. Having unloaded the Viridor waste-management operation and decided to return more than 40 per cent of the share price, the company can be judged as a straightforward cash cow in the long tradition of water companies. Investors clearly appreciated being left to decide for themselves what they want to do with the bulk of the Viridor money, after syphoning off more than £1 billion for housekeeping tasks such as a pension contribution and debt repayment.
The management has sent a clear signal that it is going to stick to what it knows best, give or take the odd minor acquisition as opportunities arise.
Perhaps the most telling part of yesterday’s announcement is the loan repayment, which will send hands up in horror in many another boardroom, at a time when interest rates are near rock-bottom. It says a lot that Pennon’s management could not think of anything else to do with £1.1 billion of debt that might have produced a higher return than the interest it has been paying. But better that than a wacky diversification.
Amid all the celebrations, though, bear in mind that return of capital will affect various shareholders differently. More than 85 per cent of Pennon’s shares are held by institutions, which should be able to avoid any headaches, but it could be another matter for individuals if the payment takes them over their capital gains tax threshold.
And while future dividends are set to exceed inflation by 2 per cent in the long term, the dividend was slashed by nearly 11p this time, taking it to 21.74p. Only 2p of that is to be restored in the current year.
Although the shares are now back to where they were last November, they are still short of where they were a year ago, in the immediate aftermath of the Viridor sale. That may suggest that the market is not completely convinced by the management’s sales pitch for its new strategy.
Advice Sell
Why There are better income prospects elsewhere
