Servcorp: Interim result 2016

There are few Aussie companies that can boast the global footprint of serviced office provider Servcorp.

The business already has 147 floors of office space in 52 cities across 21 countries and in the next six months plans to open its first offices in Iran. 80% of Servcorp's revenue and profit now comes from offshore.

As a result, the falling Australian dollar helped drive revenue in the six months to December up 27% and profit before tax up 20%. Ignoring exchange rate movements, revenue and profit before tax would have risen by 10% and 6% respectively.

The company added two floors in the past six months and, with another six to be added in the second half (headlined by the company's entry into Iran), Servcorp will operate 153 floors by year end.

On a like-for-like basis, which only includes floors open in both the current and previous reporting period, profit before tax increased by a whopping 62%. Chief executive Alf Moufarrige told us that higher occupancy levels on its like-for-like floors were the main driver.

This is despite 'temporary' drops in occupancy in Australia, China, UAE and Singapore during December, meaning Servcorp actually finished the half with lower like-for-like occupancy than in 2015. Considering the amount of competition in the industry and Servcorp's high operating leverage, we'll continue to monitor like-for-like changes closely.

One good sign is the performance of the USA, which almost broke even in the half, moving from a loss before tax of $1.4m in the first half of 2015 to a loss of just $84,000. Management expects the division to finally report its first profit in 2016, five years after Servcorp opened its first offices there.

Management expects 2016 full-year profit before tax to rise about 7% to $48 million and anticipates paying total distributions of 22 cents a share, putting the stock on a prospective yield of 3%.

The company's shares have risen 6% since Servcorp: AGM 2015 (Hold — $6.75) and we continue to recommend you HOLD.