Wednesday, August 20, 2008

Servcorp Results FY 08

Results are out today, and substantially in accordance with guidance given earlier this year.

Pleasing aspects of the results:

1. The four key expenses items as a percentage of total revenue have decreased, which is an indication of cost control.

2. Spending on Office square R & D is within budget.

3. Continued good performance from all segments except Europe.

Worrying aspects:

1. Mature floor occupancy has dropped from 85% to 84%, indication of economic slowdown.

2. Guidance of 5% only growth for profit before tax for next year, if conditions remain stable (they won't remain stable), despite a few more floors maturing, and reduced number of new floor openings next year. So they are expecting or are already experiencing soft business conditions and expect the trend to continue.

Unclear situation in respect of Office square, as to whether the investment will achieve a payback as expected by management.

The next signpost indicator will be Regus' results in a few months time.

Cashflow remains strong at $50m per year, so shares trading at 16% prospective cashflow yield. But I expect the share price will be waterlogged for some time, as management has not given any guidance of any upside expectation in the coming year.

1 comment:

Peter Phan said...

Management presentation provided an update on office square, stating that a further $3m will be spent next year, breakeven year after, and "raining dollars" two years from now, citing 70% take up in the pilot project in Norwest. I would expect take up to be high, the main question is retention, plus maintenance costs.