Shares in workplace provider Regus (RGU) took a hammering after the company warned profits for the full year would be lower than forecast. But don't panic. The downgrade wasn't the result of poor trading – the company enjoyed a tremendous first half – but of plans to add at least 450 business centres this year to meet buoyant demand. The company will hence incur higher costs and initial operating losses.
Underlying trading in the first half was strong. Adjust for the rising pound, which wiped 9 percentage points off revenue growth, and operating profit jumped 41 per cent, as a tight grip on costs kept overheads down. But for the currency headwinds, reported pre-tax profit would have risen by more than a fifth. This result was driven by the group's 'mature' centres (those opened before 2013), where profits grew 44 per cent to £93m. They also delivered strong cash conversion and high margins: business centres opened in 2010 and 2011 have achieved an average post-tax return of 25 per cent.
Meanwhile, Regus continued to invest in new business centres, opening 194 in the period at a cost of £149m and entering three countries: Botswana, Bangladesh and Namibia. Chief executive Mark Dixon was upbeat on the outlook and told us market conditions were "not too hot, not too cold, but just right".
Investec has cut full-year EPS forecasts by more than a third to 6.9p.
| REGUS (RGU) | ||||
|---|---|---|---|---|
| ORD PRICE: | 181p | MARKET VALUE: | £1.7bn | |
| TOUCH: | 180-181p | 12-MONTH HIGH: | 235p | LOW: 169p |
| DIVIDEND YIELD: | 2.1% | PE RATIO: | 26 | |
| NET ASSET VALUE: | 53p* | NET DEBT: | 32% | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 745 | 31.1 | 2.8 | 1.1 |
| 2014 | 805 | 31.0 | 2.6 | 1.25 |
| % change | +8 | - | -7 | +14 |
Ex-div:03 Sep Payment:03 Oct *Includes intangible assets of £520m or 55p a share | ||||
