Servcorp: Interim result 2019
Recommendation
Six months to Dec ($m) | 2018 | 2017 | /(-) (%) |
Average floors | 153 | 154 | (1) |
Occupancy (%) | 68 | 72 | (6) |
Operating Cash Flow | 23.6 | 19.9 | 19 |
Free Cash Flow | (10.0) | 11.3 | - |
OCF per floor ('000s) | 154 | 129 | 19 |
Net profit | (12.8) | 40.7 | - |
EPS (c) | (13.2) | 2.6 | - |
Interim dividend | 13 cents, 40% franked, unchange, ex date 6 March |
Facing fierce competition from the likes of WeWork, Servcorp had been slow to respond to the coworking movement. With occupancy falling and profitability waning, however, founder Alf Moufarrige promised at last year's AGM to spend big on refurbishments in an effort to catch up. The combination of heavy investment and uncertain pay-off scared us off and we recommended members sell the stock.
Alf wasn't kidding. This half alone, the company ploughed $34m into refurbishments and new floor openings (lifting the total to 155), with total capital expenditure increasing by a multiple of four. There's more to come, too, with management flagging another $10m-20m over the next 12 months.
Ultimately, this could prove to be a stroke of genius or a disaster - our problem is that we don't know which. With the stock firmly in the 'too-hard' basket, we're CEASING COVERAGE.