Details of the move

The news that’s causing the stock to dip sharply relates to the CEO, Mark Dixon. He sold 35m shares in the business, generating tens of millions of pounds in the process. The funds are to be used towards paying off pledge and lending contacts with one of his banking providers.

Naturally, when the CEO sells such a large chunk of stock in one go, the share price is going to fall. This isn’t just related to the transaction, but rather by other investors seeing this and choosing to sell too. The thinking here could be that if the CEO is selling, does he know something that we don’t?

The actions of Dixon are also watched closely because he’s the largest shareholder by some way. Before the sale today, he owned 25% of the outstanding shares, almost 255m. That’s quite unusual to have a CEO with such a large stake in a business this big. However, investors need to remember that he is also the founder.

Why I’m not concerned

I believe this is just a dip based on a few reasons. Dixon had 255m shares. He’s sold 35m, which sounds like a lot, but based on his overall holding it’s not a huge amount. It’s not like he has sold all of his stake in the business.

Dixon has a tangible reason for selling, based on a separate need for cash. There’s nowhere where it says he sold the stock because he thought the share price was overvalued. Put another way, this was a trade not for speculative purposes, but for a transactional need.

Finally, when I consider the trajectory the firm is on, I struggle to see this fall today manifesting a much larger drop in coming months. The full-year results from 2023 started off by noting the firm had “delivered the highest-ever revenue in IWG’s 35-year history”.

The 10% jump from 2022 help to fuel strong cash flow and ultimately a 34% increase in EBITDA from the previous year.

Watch out for the losses

There’s always a reason to be cautious. In this case, I am concerned that the business is still posting a loss after tax. This has been the way since the pandemic hit in 2020. It’s true that the hybrid workspace setup has changed a lot since then. I’d argue that IWG is well-placed to deal with this pivot in the long run. Yet it could still take several years before the business gets back to making a profit.

The risk is that this doesn’t happen. Investors can quickly get scared on realising this.

Despite this, I think the reaction today has been overblown. On that basis, I’m thinking about buying the stock shortly, looking for a move back higher in coming months.

The post It could be worth buying the dip for this FTSE 250 stock, down 7% today appeared first on The Motley Fool UK.

Due to the nature of these investments, they might not be suitable for all investors. Investing in turnaround opportunities can be a risky pastime, as there’s never any guarantee the business will turn around. 

Still, I’m comfortable with the level of risk involved. As such, here are three UK shares I’d buy with £3,000 today. 

UK shares to buy

The first investment is the aviation infrastructure business John Menzies (LSE: MNZS). The pandemic floored the aviation industry, and it’s only just starting to recover. 

Menzies is no exception. In the first half of 2020, the group’s operating loss totalled £70m. Luckily, the business has turned a corner. Profits rebounded in the first half of 2021. The group reported an operating profit for the period of £15m.

Going forward, the company should benefit from new business wins, as well as the cost efficiencies it’s achieved over the past 12 months. As its turnaround gains traction, I think it’s one of the best shares to buy. 

Those are the reasons why I’d add the stock to my portfolio of UK shares. However, it’ll face some challenges as we advance. These include competition, rising prices and the potential for further disruption from the pandemic. 

Moving on from past mistakes

Shares in oil and gas engineering group Petrofac (LSE: PFC) have been under pressure recently. Investors have been selling the stock as the organisation’s faced accusations of bribery and an investigation from the Serious Fraud Office (SFO). 

It looks as if the firm’s now starting to move on from these issues. Petrofac’s planning to plead guilty to several accusations made by the SFO. This should remove some uncertainty surrounding the group. 

At the same time, I think the enterprise will benefit from rising oil prices. These may encourage more investment, which will increase the demand for services from engineers such as Petrofac. At the beginning of this month, the group won a $100m contract to work on Libya’s oil fields. 

While I’d buy this company for my portfolio of UK shares, I’ll be keeping an eye on oil prices. A sudden slump could impact the demand for Petrofac’s engineering services. This would hold back its recovery. 

The office returns

The final company on my list of UK shares to buy is the workspace group IWG (LSE: IWG). The owner of the Regus shared office space provider, IWG may benefit from an increase in flexible working demands.

Some of its competitors are already reporting an uptick in demand for flexible workspaces, as working patterns change after the pandemic. 

As one of the largest providers in the sector, Regus could benefit disproportionately from this trend. 

That said, if there are further lockdowns, demand for the company’s services may drop. It could also suffer from increased competition and higher interest rates, which would increase the interest bill on its debt obligations. 

Despite these risks and challenges, I’d buy the company for my portfolio of UK shares today. 

The post 3 UK shares to buy with £3k appeared first on The Motley Fool UK.

I would only use this strategy alongside a more extensive, diversified portfolio. Investing all of my portfolio in just one growth stock would be a precarious strategy.

Growth stocks can produce large profits, but they can also lead to substantial losses. As such, it is usually best to own them as part of a well-diversified portfolio. 

FTSE 250 growth stock

The FTSE 250 growth stock I would invest £1,000 in right now is the serviced office provider IWG (LSE: IWG). 

Throughout the pandemic, it has become clear that companies no longer need large offices to get the best out of their employees. While I think there will always be a need for the office, more and more businesses are now adopting a hybrid approach. Employers are letting workers choose when to come into the office and when to stay at home. 

This is having a significant impact on the office market. Large offices are being exchanged for smaller premises or more flexible solutions. 

IWG owns what it calls the world’s largest flexible workspace platform. Customers can select the size of office they like and the duration. There is no need to sign lengthy and costly leases, and the amount of office space a firm can rent is flexible. 

This kind of flexibility may be highly desirable in the new normal. It already seems the company is benefiting from these themes.

The FTSE 250 company recently reported that June was a record month for space sold in its US business. The firm also noted that enquiries and customer retention rates have returned to pre-pandemic levels across the operation. 

The group also noted that there had been an “unprecedented demand for hybrid working.” It added 900 new enterprise customers in the first half, supplementing existing demand. 

This is strong evidence that the trend for flexible working is here to stay.

Expanding

To help meet what management believes will be increasing levels of activity as we advance, IWG is planning to open 84 new locations in the second half. Other new franchise agreements are also in the pipeline. 

All of the above suggests IWG could experience strong growth as the trend for flexible working grows. And this is why I would invest £1,000 in the business. I think it is an excellent way to invest in the post-pandemic economic recovery. 

That being said, the company’s growth is not guaranteed. The trend for flexible working may not last, and IWG could end up over-expanding in this situation. This would lump the business with an unnecessary level of debt. The group may struggle to sustain this debt in another economic downturn. Indeed, in previous downturns, the firm has come close to collapse. 

Still, as a post-corona recovery play, I would buy IWG as an FTSE 250 growth investment.

The post 1 FTSE 250 stock I would buy with £1,000 appeared first on The Motley Fool UK.

It’s all down to the day’s trading update, which addressed “the prolonged impact of the COVID-19 pandemic in some of the Group’s markets.”

In markets where pandemic restrictions are being eased, occupancy is improving. And there’s “an increasing pipeline of corporate customers on network-wide deals.” But continued lockdown in some markets, coupled with the emergence of new virus strains, looks like hurting the bottom line in 2021. And that’s what led to the sell off and the IWG share price slide.

Bad news for 2021 results

Overall occupancy recovery has been lower than IWG had expected. The company said: “Accordingly, this will delay the anticipated recovery in our business and, given the operational gearing of the Group, is expected to have a significant impact on the Group’s results for 2021, with underlying Group EBITDA for 2021 now expected to be well below the level in 2020.”

Considering the restrained speak that companies tend to use in announcements like this, I wonder just how bad “well below” might turn out to be. There’s another thing that concerns me about this latest update too, and which I suspect must have made the IWG share price reaction even worse. It’s the change in sentiment from IWG’s previous trading update.

As recently as 27 April, IWG said: “Q1 2021 provides a clear inflection point, with occupancy stabilising in February and improving in March. We expect this momentum to continue throughout Q2.” Still, the past couple of months could have gone either way. And I can easily forgive a bit too much optimism at Q1 time. But with hindsight, it seems a little more caution was warranted.

IWG share price valuation

Is the IWG share price low enough to make me want to buy? It’s difficult to value the shares right now. IWG reported a statutory pre-tax loss of £620m in 2020, following a profit of £55m in 2019. Against that, the company claimed a positive adjusted EBITDA figure of £134m. That’s pre-IFRS 16, which is complicated by lease liabilities — and those can look misleading for a company in the office leasing business.

But it means I can’t make much sense of where 2021 might go. I just know it should come in well below 2020.

In situations like this, I turn to the balance sheet. And that looks mixed. Reported net debt (excluding those lease liabilities) stood at £351m. To put that into perspective, IWG put its year-end net debt to EBITDA multiple at 2.7 times. And that’s a good bit higher than the 1.5 to 2 times levels I’m more comfortable with. On the upside, that’s based on a bad year for earnings. But on the downside, we’re in for an even worse one this year.

Sufficient liquidity?

IWG reported liquidity headroom of £802m at 31 December 2020. But that has to last not just this year, but presumably until we see a return to actual (rather than adjusted) cash profits coming in again. That uncertainty is too much for me and I’ll wait at least until first-half results in August. Until then, I expect some IWG share price volatility.

The post Why has the IWG share price crashed this week? appeared first on The Motley Fool UK.

The price of the office space provider collapsed 10% on Monday to 328p per share on a frosty reaction to latest trading numbers. The IWG share price slipped to its cheapest level since late January, to 306p at one point. Its gains over the past 12 months have now been trimmed to 8%.

IWG’s share price slumps on fresh trading commentary

In today’s update, IWG said “we have continued to see strong recovery in some of our markets” since its most recent update in late April. This included “positive occupancy momentum in the US,” the FTSE 250 company’s single-largest market.

However, IWG added that “the overall improvement in occupancy across the whole group has been lower than previously anticipated.” This is due to the prolonged impact of Covid-19, it said, which includes continued lockdown restrictions and the emergence of new virus variants in some of its territories.

Consequently, IWG said the recovery of its business will be delayed. It added that, given the level of operating gearing, these worse-than-predicted occupancy levels will have a “significant impact” on 2021 results.

The workspace provider said it now expects underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to be “well below” the level it recorded last year.

Remaining bullish for 2022

IWG said trading conditions are improving in areas where Covid-19 restrictions are easing, such as in the US. It noted “occupancy is improving, enquiries have reached pre-Covid-19 levels, we have an increasing pipeline of corporate customers on network-wide deals and service revenues are starting to improve.”

The FTSE 250 firm’s flexible working products are witnessing “unprecedented demand” as companies adopt hybrid working (a mix of office- and home-based working). It added that those partnering with IWG continues to “strengthen significantly.” And it has “a very strong pipeline of potential partners wanting to work with us to grow the platform,” the company said.

The firm also said “good progress is being made in relation to larger master franchise agreements” too. It commented that several such agreements are in the final stages of discussions.

IWG said the positive trends it’s witnessing support its view that “the prolonged impact of Covid-19” on its 2021 results “is one of timing and that, as lockdown restrictions ease, the significant actions taken to restructure the Group’s cost base, together with the unprecedented demand for hybrid working and the Group’s unrivalled national and international network coverage, will deliver a strong improvement in profitability and cash generation.”

IWG’s expectations of a “strong recovery in 2022” are broadly unchanged. The company continues to maintain a strong financial position with significant liquidity, it added.

The post This is why the IWG share price has tanked 10% today! appeared first on The Motley Fool UK.

Rupert Hargreaves: IWG

As parts of the world start to move on from the pandemic, companies are re-evaluating their office footprints. Many firms have already announced they’re introducing more flexible working patterns, and this is proving to be good news for IWG (LSE: IWG).

Owner of the Regus brand and one of the largest flexible office space groups globally, IWG has already registered growing interest from corporations looking to scale-down their footprints. This could help support the company’s growth throughout 2021.

The most considerable risk the business faces is another economic slowdown. That could hit demand and slow the return to growth.

Rupert Hargreaves does not own shares in IWG.

Matthew Dumigan: Scottish Mortgage Investment Trust 

After delivering a stellar return over the last five years, Scottish Mortgage Investment Trust (LSE: SMT) has stumbled upon tricky times over recent weeks, watching its price drop sharply since mid-February. 

The increased appeal of cyclical recovery plays and concerns in relation to an overpriced US tech sector appear to be behind the recent sell-off. 

Nevertheless, since I’m confident in the trust’s long-term approach and ability to identify the companies of the future, I would be inclined to see the recent dip as an opportunity to buy shares in this top British stock at a discount price in April. 

Matthew Dumigan has no position in Scottish Mortgage Investment Trust.

Nadia Yaqub: Royal Mail

I’ve recently turned bullish on Royal Mail (LSE: RMG). The company continues to see parcel volume growth due to the online shopping boom. As a result, it has upgraded its full-year revenue guidance. Royal Mail expects to release its results in May.

The company is boosting is infrastructure with an automated parcel hub in the Midlands. It has also come to an agreement with union members and both parties are working together. I think Royal Mail is taking the right steps and a reinstatement of its full dividend could be possible. I reckon the shares could grow further.

Nadia Yaqub does not own shares in Royal Mail.

Jonathan Smith: Greggs

Greggs (LSE:GRG) is a UK-based bakery chain with over 2,000 stores in operation. Recently, full-year results showed a loss of £13.7m, a stark fall from the 2019 profit of £108.3m.

I think the issue here is predominately based around the impact of the pandemic and so think that Greggs specifically are doing well. In fact, the company net opened 28 stores during 2020.

The business is also focusing on diversifying revenue channels, with products now available in supermarkets as well as for home delivery. Both areas should boost profitability into 2021 and beyond.

Jonathan Smith has no position in Greggs.

Christopher Ruane: Unilever

Consumer goods giant Unilever (LSE: ULVR) hasn’t had a great 2021 so far. Its shares have given up some of their gains from last year.

But the company owns brands from Dove to Cif, which are used daily in millions of households worldwide. That does mean some currency risks and post-pandemic hygiene product usage may fall. But with its strong brands, global distribution and spread of businesses, I regard the name as attractive for the long-term. It’s well-established with experienced management.

I see the current price weakness as a buying opportunity for this top British stock in April.

Christopher Ruane owns shares in Unilever.

Jabran Khan: Playtech 

FTSE 100 gaming giant Playtech (LSE:PTEC) is one of the largest gaming software suppliers. Playtech creates and delivers platforms for approximately 140 betting firms across 19 countries.

Gaming is a multi-billion-dollar industry and continues to grow. Recent full-year results confirmed cash preservation and a strong balance sheet. B2B and B2C markets continue to perform well with new agreements signed in previously untapped territories. 

At Playtech’s current price point, I consider it to be a great opportunity. It has recovered some of its loss in price since the market crash but is still nowhere near 2018 highs.

Jabran Khan has no position in any shares mentioned.

Roland Head: Redrow

FTSE 250 housebuilder Redrow (LSE: RDW) says it’s already sold 95% of the houses it expects to build by the end of June. The company’s order book reached a record £1.3bn at the end of December, stretching into the next financial year.

Redrow’s share price has already bounced back strongly from the lows seen in April last year. But with the stock trading at just 1.2 times book value, I think Redrow still looks very affordable.

With more than £200m of net cash on the books, the main risk I can see is that the housing market will slow down later this year. I can’t rule that out. But I think Redrow looks attractive at the moment.

Roland Head has no position in any share mentioned.

Edward Sheldon: London Stock Exchange Group

My top British stock for April is London Stock Exchange Group (LSE: LSEG). It’s a leading financial infrastructure and data company.

London Stock Exchange’s share price has taken a hit recently after the group advised that it will face higher-than-expected costs this year. I see this share price weakness as a buying opportunity. Full-year 2020 results, posted in March, were relatively solid with earnings up 5%. Encouragingly, the dividend was hiked 7% which suggests that management is confident about the future.

Even after the share price fall, the stock isn’t cheap. This is a risk to consider. However, it’s worth noting that since the pullback, several directors have snapped up stock. I see this insider buying as a bullish signal.

Edward Sheldon owns shares in London Stock Exchange Group.

Zaven Boyrazian: ITV

ITV (LSE:ITV) is the UK’s second-largest broadcasting company that generates revenue by selling advertising time to its customers.

Live TV viewership has been declining in recent years, as streaming services like Netflix gain more popularity. However, ITV has acknowledged this and launched its own free streaming service called ITV Hub.

Today more than 33m people have signed up. And viewing hours continue to grow. Predicting viewing habits to produce new popular content is quite a challenge.

But given its successful track record, ITV looks like it can thrive in the new streaming environment, and so it’s a stock I’d like to have in my portfolio.

Zaven Boyrazian does not own shares in ITV or Netflix.

Royston Wild: Naked Wines 

The Naked Wines (LSE: WINE) share price has fallen sharply from the record peaks above 800p struck in February. I think this provides a terrific dip buying opportunity. And particularly with full-year trading results scheduled for Thursday, 15 April. 

I reckon those upcoming financials will remind the market of Naked Wines’s exceptional growth potential. Most recent financials showed sales soar 80% in the six months to September thanks to strong demand from both new and repeat customers.  

It’s critical to remember that recent sales have been driven in large part by Covid-19 lockdowns. Naked Wines therefore faces the possibility that revenues could slow as restrictions ease. Still, I think its robust position in the fast-growing online retail segment will still deliver bubbly sales progress looking ahead.

Royston Wild does not own shares in Naked Wines.

Kirsteen Mackay: Greggs 

FTSE 250 high street hot food shop, Greggs (LSE:GRG) posted a loss for 2020 after lockdowns decimated its sales. However, with lockdowns gradually being lifted in April, I think this top British stock will begin to pick up pace again in April.

2019 profit was £108m, while its 2020 loss was approaching £14m. The business was hugely popular prior to the pandemic and I think it’s likely to return to high-footfall and demand once the high streets reopen. Taking the bull by the horns, the company plans to open 150 new stores this year. It’s also branching into supermarkets and embracing home delivery options. 

Kirsteen Mackay does not own shares in Greggs.

Paul Summers: Stock Spirits

One share that’s caught my eye recently is branded spirits firm Stock Spirits (LSE: STCK). Like industry peer Diageo, I think the mid-cap could do very well once the pandemic has been sent packing. 

Naturally, news of another potential coronavirus wave in Europe isn’t ideal considering the firm’s presence in these markets. Even so, a valuation of just over 15 times earnings isn’t demanding for a company in this sector. Moreover, Stock’s off-trade focus should help to mitigate the impact of further closures to bars and restaurants. The robust balance sheet is another attraction.

Paul Summers has no position in Stock Spirits.

G A Chester: Hikma Pharmaceuticals 

Hikma Pharmaceuticals (LSE: HIK) shares are at a decent discount to their level earlier this year. I think it’s a good opportunity to buy into this specialist in non-branded generic and in-licensed drugs. 

Dollar weakness, a rotation out of defensive stocks into cyclicals, and company guidance for 2021 being below City expectations have all weighed negatively on Hikma. These factors may keep the shares depressed in the short term. 

However, chief executive Siggi Olafsson has a track record of guiding conservatively at the start of the year and upgrading as it progresses. As such, I think Hikma’s current 16 times forecast earnings represents good value. 

G A Chester has no position in Hikma Pharmaceuticals.

Manika Premsingh: Ferrexpo

The FTSE 250 iron ore miner Ferrexpo (LSE: FXPO), much like other industrial metals’ miners, had an unexpectedly good 2020 as commodity prices boomed. 2021 is shaping up quite well too. Its share price is up 35% since the start of the year.

The economy expected to gather steam through this year. A big fiscal stimulus from the US likely to be directed towards infrastructure creation. And China’s huge commodities’ demand is likely to continue growing, albeit at a slower pace than last year.

These developments bode well for Ferrexpo, which still trades at a surprisingly low earnings ratio of 3.6 times, making it a bargain buy for me at this time. 

Manika Premsingh does not own Ferrexpo shares.

The post Top British stocks for April appeared first on The Motley Fool UK.

IWG vs. WeWork

This is the first such move for IWG, but one that has been anticipated for a while. WeWork has dominated headlines compared to its British rival for the past few years. In the runaway tech-valuation atmosphere of Silicon Valley, WeWork commanded a $47bn valuation – despite not making profits.

In a tortoise and the hare scenario, however, IWG has been going slow and steady for many years. Unlike WeWork, IWG runs a franchise model of sorts. Partners take on the risk of leasing space, but operate under the IWG (previously Regus) brand.

Raising money, seeking opportunities

This is the first such takeover of space since IWG announced it would be raising a £315m “war chest” at the end of last month. As part of a strategy to acquire rivals hit by the coronavirus, it is a strong shot across the bow that WeWork was the first target.

The company said it expects there to be a number of opportunities for it to accelerate growth because of the coronavirus. I have to say I agree. While lockdown has been hurting shared office spaces, I think permanent office space will be the one damaged long term.

Though IWG has been hit like everyone else, it has been holding strong comparatively. The company scrapped its dividend, furloughed staff, and deferred new openings. It has pushed for rent deferrals with its landlords, and the board has taken a 50% pay cut. All told, the measures have saved the company £150m.

The new normal

I think the real benefit for IWG though will be the way people work when we are out of lockdown. The forced increase in working from home, I think, could shift the landscape in many companies. There are already a number of firms saying they will not renew their office leases.

In an environment where permanent offices are being used less, flexible workspace may move into its heyday. Working from home and flexible working will almost certainly increase. It’s in everyone’s interest. Employees get to skip a commute and be at home. Employers get to save on office space costs and business travel.

When this is the new normal, companies like IWG and WeWork will be key. Even if people can work from home 100% of the time, there will almost always be certain occasions that require an actual office.

With its share price having already bounced from its low in March, the only question for me is whether the IWG price is still cheap enough to benefit from this. We may have missed the boat on a snap growth stock, but as a longer-term investment, IWG might be the way to go.

The post As IWG takes over WeWork spaces, what could it mean for its share price? appeared first on The Motley Fool UK.

Global growth

The FTSE 250-listed company has come a long way since issuing a profit warning in 2017, and is growing rapidly in the Americas, Asia Pacific, France, Germany and Spain, although UK revenues did temporarily slip due to network rationalisation.

The £3.9bn group’s Q3 statement in November hailed “continuing strong revenue growth, excellent franchising and enterprise account momentum”. It added another 66 new locations in the quarter, taking its worldwide total to 3,348, while revenues grew 15.5% across all its centres, with strong performance in every region, including the UK this time.

Cash is flowing, it has launched a share repurchase programme, spending £22.4m in the quarter, and cut net debt further to £301.2m, putting it in a strong financial position.

After striking master franchise agreements in Japan, Taiwan and Switzerland, IWG now boasts 27 franchise partners across 22 countries. Its strong pipeline of global franchising opportunities suggests scope for further growth.

The only obvious downside I can see is that the stock trades at 35 times forward earnings, which makes it a little expensive. That means it must continue to grow rapidly to keep investors happy and the share price bubbling along. However, with earnings forecast to rise 17% this year, and 19% next, IWG still appears to have momentum on its side.

Not so hot

By contrast, education specialist Pearson Group (LSE: PSON) has endured another dismal year, and is in danger of losing its place in the FTSE 100. The stock is down 37% over the last year, and 57% measured over five years.

Last September, a profit warning sent the Pearson share price crashing 15% in a day. That came as it continued to suffer problems in its US educational business, as the shift from print to e-books hit sales, and the internet broke down barriers for entry, allowing more nimble competitors to take market share. So far, the group hasn’t come up with an answer.

Pearson has been restructuring in response, but its latest update shows educational revenue down 12%, although it is growing other areas, such as Online Program Management, Professional Certification materials, and the Pearson Test of English Academic.

I was surprised to see the group preparing a £350m share buyback. This may reward investors, but I’m a bit old-fashioned, and prefer to see companies reinvesting that kind of money back into the business, to build growth.

City analysts expect earnings to fall 19% this year and 2% next, which hardly bucks me up. You do get a yield of 3.5%, though, covered 2.5 times, while its valuation of 12.3 times forecast earnings will tempt bargain seekers. Pearson might pull it off, but I’m not rushing to buy it at the moment.

The post £1k to invest? I’d buy this double-your-money FTSE 250 growth stock appeared first on The Motley Fool UK.

On face value, one may have assumed that this is a negative sign for such shared office space companies, however the exact opposite may be true. While WeWork is now struggling to raise finance, its largest competitor, UK-based IWG (LSE: IWG), owner of the Regus brand, is seemingly strong.

The difference

The main difference between WeWork and IWG from an investor’s point of view, is that IWG is actually making money – WeWork isn’t. Though it has become a familiar pattern in recent years for firms, particularly in technology, to be highly valued at an IPO before they have even turned a profit, making money is of course still the goal of all non-nationalised companies.

WeWork seems to have fallen into the same trap that a number of recent US IPOs have suffered, notably Uber, that of over valuation. The hype simply ran away with what sensible investors were willing to pay. This is combined, by his own admittance, with Neumann’s inability (and, I suspect, disinclination) to operate a public company rather than a private one.

According to IWG CEO Mark Dixon, the model behind WeWork’s main business is flawed. Dixon believes WeWork is not making enough income from other areas such as conference rooms and telephone services.

He said that the office space itself is a break-even business, and so money needs to be made elsewhere. He notes, “It’s like running a hotel and giving away the room service and having a free bar. You will have a very popular hotel but you won’t make any money”.

Regus going strong

This strategy, it seems, is working for IWG. Earlier this month Dixon said he had the goal of doubling revenue growth, which is already in the low teens, while in August there was talk of spinning off its US business – though WeWork’s failed IPO may slow this idea.

IWG runs a franchise model, similar to some hotels, where partners take on the risk of leasing buildings, but operate under the IWG brands. The company also emphasises spreading its offices across many towns and cities, not just large hubs – another contrast with WeWork, which is heavily focused on large cities.

With WeWork now in trouble after its failed IPO, struggling to raise finance and burning through more cash than it should be, its failures could also be to the benefit of IWG. At the simplest level, the fewer competitors there are, the better it is for the survivors.

At its current price, which is fairly high, IWG shares yield about 1.6% – not the greatest dividend – though this has grown by more than 11% per year for the last five years. It also has a forward looking price-to-earnings ratio of almost 38; again, quite expensive.

That said, if WeWork starts to get in real trouble, who knows what it could do for the IWG share price?

The post After the failed WeWork IPO, can this FTSE 250 competitor fare better? appeared first on The Motley Fool UK.

The story behind the gains

I think a lot of the gains are due to what might be termed the ‘WeWork factor’. Although WeWork is heavily loss-making it’s expected to very shortly launch a mega IPO in the US. I think the stretched valuations in the commercial property sector have pushed IWG up because it has a similar business model to WeWork. Divesting its business in Japan while adding other locations globally has also I believe played a role in exciting investors about the future prospects for the group. 

The numbers

The share price has been so steep that the P/E has been lifted to a very high 35. For a company that in its 2019 interim results posted anaemic operating profit growth, I think this is a worry. Operating profit including joint ventures rose by £200,000, or 0.4%, in H1 2019 versus the same period the previous year. Compare that to revenue growth of 12.3% and the question is why is profit growth so poor?

Part of the answer lies in overheads, which grew by 10% to £145.4m. And another part of the problem will be down to larger structural changes in the industry – more working from home, more demand for flexibility in renting offices because of WeWork’s business model.

What does it mean for investors?

I worry for a company with a P/E as high as IWG’s that cannot grow profits. Between 2017 and 2018 operating profits fell 8%. I think there is a mismatch between the rising share price and a poorly performing business and I’d avoid the shares in IWG despite the rising share price. Although the commercial property group has a lot of features for investors that make it preferable to WeWork, I still wouldn’t rate it as a very good investment opportunity. 

A better property choice?

The valuations of housebuilders are moving in the opposite direction to IWG’s. Fears around Brexit and the economy, as well as the end of Help to Buy, are pushing down the P/E ratios of all the housebuilders. Bellway (LSE: BWY) is well-positioned I think to reward shareholders. The P/E is under seven and the dividend yield is around 5%. This puts the company on a price-to-earnings-growth ratio of around 0.5 which indicates big potential for growth.

The dividend, despite the generous yield, is well covered by earnings so should be easy to sustain without the need for a cut, even if economic conditions do worsen. The dividend has also been growing strongly year-on-year and is continuing to rise. This is good news for shareholders and reflects the confidence of management in the prospects for the business.

Bellway recently announced that full-year pre-tax profit is expected to be in line with current market expectations as it built a record number of new homes. Sure, there was a note of caution, as is customary at the moment from housebuilders, about margins and the possibility of a decline in buyer confidence. But I’d say the business is performing well. This is proven by the average selling price ticking up 2.5% to £292,000.

The post Should you jump on the bandwagon with this rising share price? appeared first on The Motley Fool UK.