The top-performing stock for the quarter was IWG (TSXV:IWG) (formerly known as Regus). IWG is a global flexible workplace provider whose network includes almost 3,000 locations across 900 cities in over 100 countries. IWG’s share price reacted favorably after the release of the company’s fiscal year 2016 earnings results in late February. The company reported 5% constant currency revenue growth, which was admittedly a little bit weaker than we had expected, but was more than offset by a 13% constant currency decline in overhead expense. This cost cutting was achieved even as the company expanded its network by 6%—a further illustration of IWG’s excellent progress in restructuring its cost base. The company’s strong operating leverage produced robust free cash flow and a material improvement in return on invested capital. We expect these trends to continue as management further rationalizes its overhead expenses while it increases the mix of capital contributions from third parties. These partnering relationships enable IWG to grow in a capital light manner while further reinforcing its significant scale advantage. (IWG has almost 20 times as many locations as the number two player in the industry.) While IWG’s shares performed quite strongly in the first quarter, we see substantial upside from current levels and the company remains a significant holding in the portfolio.
From the Oakmark International Small-Cap Fund first-quarter 2017 shareholder letter.
