IWG PLC (IWGFF, Financial) is a provider of office space for individuals and small businesses. The stock has done well and could continue to do so with changes in retail.
IWG PLC’s stock trades for 3.255 pounds ($4.15), there are 915.36 million shares, and the market cap is 2.98 billion pounds. Not exactly a small company. The dividend is 5.1 pence, and the dividend yield is 1.57%. Earnings per share are 14.71 pence, and the price-earnings (P/E) ratio is 22.1.
Sales were 2.33 billion pounds last year and grew from 1.676 billion pounds in 2014. Net income grew from 70 million pounds to 139 million pounds over that time frame. Great growth. The company also reduced shares outstanding from 944 million in 2014 to 915.36 million today.
Free cash flow was 124 million pounds last year, and the free cash flow yield was 4.16%. Not a bad yield. The balance sheet shows 50 million pounds in cash and 552 million pounds in receivables. The liability side shows 875 million pounds in payables and 201 million pounds in debt. That’s a pretty strong balance sheet.
The International Workplace Group, as its name implies, is a workplace company. It has close to 3,000 locations in 100 countries and 1,000 cities. It operates under the names Regus, Spaces, Signature, Open Office, Kora and MOS. The Americas represent 43.7% of sales, Europe/Middle East/Africa 21.5%, Asia 15.5%, the U.K. 19%, and there are a handful of operations elsewhere.
What does the company do exactly? It leases office space and then subleases to individuals and small businesses. As the company says in its annual report, the risk is that its leases with the landlord are long term and leases with its tenants are short term. You can see the risk if tenants cancel leases and IWG is stuck paying its landlord. To mitigate this risk, the company has flexible leases based upon performance metrics.
Follow this link to a listing of offices in Los Angeles, and it will give you a better idea of what IWG does. As you can see, these are enormous office buildings. IWG will go in and fix up a floor or a large office and sublet. The office buildings in these pictures in Los Angeles would be worth hundreds of billions of dollars, if not more. As an example, in the Wells Fargo building in downtown Los Angeles, a corner office rents for $18.20 to $72.70 a square foot. In Vancouver, IWG is offering events, networking, snack rooms, nursing rooms and other amenities to attract businesses.
IWG sort of looks like a picks-and-shovels investment to me. It’s kind of like not investing in a mine but selling everything to the mining company. You can be in tech but not invest in tech because of the short shelf life of companies and the challenge of predicting the sector.
Estorn Ltd. owned 26.8% of shares as of the annual report. I don’t find an abundance of information on Estorn. The company reports in pounds but has a corporate headquarters in Switzerland. For the sake of this article, I’ll call it a British company. Oakmark International Small Cap, Wasatch International and Third Avenue Management are shareholders according to GuruFocus. Credit Suisse has a target price of 4.35 pounds.
This stock reminds me of so many other stocks in this ever-changing, global economy in which we live. It could keep going for years and years as retailing changes and people can sell online. Of course, I’d guess that it would pull back in a recession. IWG is a good stock to follow. It has nice cash flows, has been buying back debt and is strong is in a disruptive space.
Disclosure: We do not own stock in IWG.
