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Regus ramps up

RESULTS: Regus sees big potential to ride the flexible working wave, but these growth prospects are now more fully reflected in the rating.
March 5, 2014

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.

IC TIP: Hold at 228p

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)
ORD PRICE:228pMARKET VALUE:£2.2bn
TOUCH:227-228p12-MONTH HIGH:235pLOW: 129p
DIVIDEND YIELD:1.6%PE RATIO:32
NET ASSET VALUE:54p*NET DEBT:11%

Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20091.0686.97.12.4
20101.047.80.22.6
20111.1649.44.32.9
20121.2485.17.53.2
20131.5381.57.13.6
% change+23-4-5+13

Ex-div:30 Apr

Payment:30 May

*Includes intangible assets of £492m, or 52p a share