Investors were disappointed last August when IWG (IWG) terminated acquisition discussions with its four private equity suitors. When the news came out alongside the interim results the share price sank by a fifth. Seven months later, the group is betting heavily on the opportunities facing its ‘Spaces’ co-working brand.
Co-working is a major trend at the moment with the buzz - and hype - surrounding Wework, a startup valued at $42bn in November, despite losses of $1.2bn in the first nine months of 2018. IWG’s management has upped growth capital expenditure to £332m to take advantage of growth opportunities, with roughly two-thirds going to Spaces. The division added 103 locations in the year, taking the total to 182. The total group, meanwhile, added 299 locations for a total of 3,306.
Such growth has not come cheap, net debt grew by £164m to £461m, pushing to 1.2 times cash profits, from 0.8 times in 2017. Even this, however, pales in comparison to the impact of coming changes in the accounting treatment of leases. IFRS 16 comes into effect this year, and while it makes no difference to the group’s cash flows, it will lead to a substantial impact on EPS - which reduces 40 per cent under the change - as well as total borrowings, which jump from £530m to £6.68bn.
Analyst Peel Hunt reduced forecasts following the results, and now expects adjusted EPS of 13.4p for 2019, compared with 11.7p in 2018.
| IWG (IWG) | ||||
| ORD PRICE: | 260p | MARKET VALUE: | £ 2.33bn | |
| TOUCH: | 260-260.5p | 12-MONTH HIGH: | 335p | LOW: 199p |
| DIVIDEND YIELD: | 2.4% | PE RATIO: | 22 | |
| NET ASSET VALUE: | 84p* | NET DEBT: | 61% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 1.68 | 87.1 | 7.4 | 4.00 |
| 2015 | 1.93 | 146 | 12.8 | 4.50 |
| 2016 | 2.23 | 174 | 14.9 | 5.10 |
| 2017 | 2.35 | 149 | 12.4 | 5.70 |
| 2018 | 2.54 | 139 | 11.7 | 6.30 |
| % change | +8 | -7 | -6 | +11 |
| Ex-div: | 25 Apr | |||
| Payment: | 24 May | |||
| *Includes intangible assets of £722m, or 81p a share | ||||
