Servcorp

Servcorp chairman Bruce Corlett certainly likes to build suspense. In Wednesday’s AGM address he told shareholders that trading conditions in the first quarter of the 2013 financial year ‘have been very challenging, particularly in Australia, Singapore, Japan and the USA’ and that ‘trading results have been substantially lower than originally expected’, before confirming net profit guidance of about $27m, made up of $9m in the first half and $18m in the second. If achieved, that would mean a 47% increase over the 2011 result.

Corlett said that the company had ‘now introduced measures to reduce vacancy’ and it’s presumably optimistic that they will work. But, given that the first quarter was below expectations, you’d have to think that at the very least there is less wiggle room than there was before.

It also doesn’t quite tally with the revelation that the company’s unencumbered cash balance now stands at $92.3m, after the final dividend payment of $7.4m, compared to $95.8m at end of June. We’d have hoped to see it closer to unchanged, but cash flows can be lumpy in this business.

In his presentation, chief executive Alf Moufarrige said the company was happy with the progress of immature floors, except in the US, which is about 12 months behind schedule, with its remaining 19 immature floors (as at 30 June) expected to be mature by 1 July 2013.

The company confirmed that the interim and final dividends for the current year were expected to be unchanged at 7.5 cents each. It also restated its plan, originally announced along with the full-year results, to buy back up to 5m shares, but confirmed that only 8,532 shares had so far been purchased, at an average price of $3.10.

The stock price is up about 11% since our review of the full-year results, on 29 Aug 12 (Long Term Buy – $2.93) and, despite the weak trading and noting that the current price is around the top of our recommendation guide price for a Long Term Buy, we’re happy to keep backing the success of the company's big expansion. LONG TERM BUY.

Note: The model Growth and Income portfolios own shares in Servcorp.