Berenberg lowers IWG from 'buy' to 'hold'

Berenberg stated that after "an incredibly challenging year" for IWG, it believes the company has come out of 2020 in "a strong position", highlighting that the business was lowly levered, had remained cash-generative throughout the Covid-19 pandemic, had seen the benefits of its national and global model with large corporate enterprise deals and had made "clear steps" on the path to a capital-light growth model.

Given this, the German bank thinks IWG has a "clearer competitive advantage" in a post-Covid-19, flexible-working world, in a market that looks well set to take share over the long run.

"Therefore, in our view, the long-term outlook for the group is strongly positive," said Berenberg.

However, Berenberg said a second downgrade to its forecasts in three months highlighted the risks to earnings as IWG emerges from the pandemic, with occupancy likely to need time to recover from a lower base as global lockdowns have lasted longer than initially expected.

"In turn, this then makes the near-term outlook for material master-franchising deals weaker, limiting potential positive catalysts," said the analysts, who also lowered their target price on the stock from 425.0p to 370.0p.

"Alongside risks to a recovery and lower upside to our preferred valuation approaches, we consider now a sensible time to pause for breath and wait for a more attractive entry point to return as buyers."