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Regus accelerates expansion plans

RESULTS: Shares in the office rental firm Regus sink 7 per cent as improved trading in mature centres is not enough to offset concerns over the rapid expansion programme.
March 20, 2012

"Cautiously optimistic, there are a few rays of light but nothing more" said chief executive Mark Dixon of the year ahead. However, this is not going to hold back the company's growth plans with the service office provider planning to open another 200 locations in 2012. In fact, having opened 139 new centres last year including 91 in the second half to take the total to 1,200, the expansion is ramping up as Regus aims to have a network of 2000 centres by 2014.

IC TIP: Hold at 104p

The sharp rise in operating profits from £23.9m to £50.6m last year reflects a strong performance from the 948 mature centres, opened prior to 2010, which grew revenues by 3.8 per cent to £1.03bn and also benefited from cost saving measures. The net effect was to improve gross margins by a hefty 430 basis points to 26.6 per cent, giving operating profits of £107.7m and producing free cash flow of £117m. The problem remains the new centres which contributed £120m in revenue, but made an operating loss of £54.7m although the 116 centres opened in 2010 made a positive contribution in the second half. And with expansion plans accelerating, this will prove a drag on profits and prompted broker Investec to downgrade adjusted pre-tax profit forecasts from £81.5m to £76m, giving EPS of 6.4p (2011: £45.5m and 4p).

REGUS (RGU)

ORD PRICE:104.5pMARKET VALUE:£1.0bn
TOUCH:104-105p12-MONTH HIGH:120pLOW: 63p
DIVIDEND YIELD:2.8%PE RATIO:26
NET ASSET VALUE:52p*NET CASH:£188m

Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20070.8611910.51.0
20081.0814912.01.8
20091.06877.12.4
20101.0480.22.6
20111.16464.02.9
% change+12+483+1900+12

Ex-div: 24 Apr

Payment: 25 May

*Includes intangible assets of £285m, or 30p per share.