Frustrated by the lowly valuation the market gave to International Workplace Group (IWG) — better known as Regus — Mark Dixon toyed with the idea of selling out to private equity last year.
That frustration may have given way to alarm. Shares in the serviced offices provider are down 60% to 174.5p this year as investors fear that the near-total shutdown of the economy will destroy IWG’s rental income.
The shockwaves unleashed by efforts to contain the coronavirus have thrown the flaws of IWG’s model into sharp relief. IWG and its glitzier rival WeWork let much of their space over short-term periods, but are themselves locked into much longer leases — about 4½ years on average in IWG’s case. And many of their tenants are start-ups lacking the reserves to withstand what in some cases will be months of lost income.
A short-term shock is a given, but could this be a good time to buy IWG’s bombed-out shares?
IWG, which owns Regus and the snazzier Dutch co-working brand Spaces, has sales of £2.7bn from more than 2.5 million customers in 3,338 buildings around the world. After its share price plunge, it is valued at £1.5bn.
To conserve cash, IWG announced last month that it was cutting operating costs and capital expenditure, skipping its final dividend and suspending a £100m share buyback programme.
IWG said it was unable to give guidance for this year, but analysts at Stifel slashed their estimate for operating profit by 71% to £39.9m.
Dixon, 60, has come through tricky situations before. In 2002, Regus had to sell a majority stake in its UK business to Jon Moulton’s Alchemy, and in 2003, it became the first British company to file for chapter 11 bankruptcy in America.
Recently, Dixon has shown that he isn’t afraid of ruffling a few feathers to protect his interests. Buildings leased by IWG are held in special-purpose vehicles, two of which were dumped into administration last year.
He watched in horror as WeWork attracted billions in venture capital funding, only for a $47bn (£38.3bn) listing to fail last year. Regardless of whether WeWork comes through the crisis, co-working is here to stay. Its growth may even accelerate.
Companies are realising that the wheels keep turning, even if nobody is in the office. Many will come out of the Covid-19 era keen to slash fixed costs.
As with firms in so many sectors, the main unknown about IWG is just how long the world will be locked down for. Until that becomes clear, this is a stock to watch rather than buy.