Regus (RGU) sacrificed financial performance for the expansion of its serviced-office empire last year. The group made its biggest-ever investment in its network, adding 448 new centres to expand its network by a third as it sought to capitalise on the flexible-working trend. This investment came at a cost - £301m in cash, with a £114m drag on operating profit. So group operating profit grew only very slightly, from £90.2m to £90.8m, whilst the higher interest costs associated with the investment sent earnings per share backwards.
The new centres will take time to reach full profitability, but in a couple of years they should join the group’s mature centres and start throwing off cash. Last year the mature centres grew operating profits by 33 per cent to £205m as increased economies of scale drove the operating margin up to 16.7 per cent (2013: 13.1 per cent). They also generated free cash flow of £157m.
Chief executive Mark Dixon says 2014 will be “another big year for growth” and has plans to open at least 300 new centres. But stronger sterling is a headwind: if it remains at current levels there will be a modest profit hit. To reflect this and higher interest costs, Investec has cut its 2014 adjusted earnings per share forecast by 7 per cent to 10.5p (2013: 7.1p).
REGUS (RGU) | ||||
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ORD PRICE: | 228p | MARKET VALUE: | £2.2bn | |
TOUCH: | 227-228p | 12-MONTH HIGH: | 235p | LOW: 129p |
DIVIDEND YIELD: | 1.6% | PE RATIO: | 32 | |
NET ASSET VALUE: | 54p* | NET DEBT: | 11% |
Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
---|---|---|---|---|
2009 | 1.06 | 86.9 | 7.1 | 2.4 |
2010 | 1.04 | 7.8 | 0.2 | 2.6 |
2011 | 1.16 | 49.4 | 4.3 | 2.9 |
2012 | 1.24 | 85.1 | 7.5 | 3.2 |
2013 | 1.53 | 81.5 | 7.1 | 3.6 |
% change | +23 | -4 | -5 | +13 |
Ex-div:30 Apr Payment:30 May *Includes intangible assets of £492m, or 52p a share |