Regus profits and returns impress

Underlying operating profit surged 37% to £144.8m on revenues that were up 15.9% on the previous year at £1.93bn.

Mature centre revenue was up 4.3% at the constant currency level, however, which was down from the 5.3% rate for the first nine months of the year.

Underlying profit before tax rose 46% to £130.4m, with earnings per share up 45% to 11.2p.

After generating £215.7m, or 23.1p per share, of cash in 2015 before net growth capital expenditure, share buybacks, dividends and disposal proceeds, directors proposed a 13% increase in the dividend to 4.5p per share.

Net debt was higher than expected at £190.6m, up from £138m a year before.

Confirming that current trading was in line with expectations, chief executive Mark Dixon said he was confident in 2016 targets as well as the business model and the long-term structural drivers of the industry.

"We will continue to invest to increase our levels of customer service, make our business relevant to a wider market, drive greater operational efficiency and deliver long-term shareholder value.

"We will continue to adhere to our strict financial criteria in executing our growth plans and remain suitably vigilant given the current global macroeconomic uncertainty, with flexibility in both our expansion plans and our cost base."

As at 22 February, Regus had visibility on net capex of circa £100m for 2016, representing roughly 300 locations, up from £65m and 220 in November.

Analysts at Peel Hunt said they had been concerned about emerging market exposure, even if this only 16% of group revenue, together with a macroeconomic slowdown, but sterling's recent weakness has helped and so profit forecasts for 2016 and 2017 were held at £169m and £211m.

"The key focus for investors, apart from any macro impacts, is the J-curve of post-tax return on cash for recent openings. The 2012 cohort generated 4.2% cash returns in 2014 and should have generated 17% to meet payback targets, the result in 2015 just reported of 11.2% is better.

"The 2013 cohort has hit 11.2% in 2015 compared to that 17% year 2 target - still adrift but better than the 2012 cohort."

Investec was encouraged to note that post-tax cash return of 23.1% was delivered on locations opened on or before 31 December 2011, up from 20.9% on the same estate for calendar 2014, which reflected the progress of the business as locations mature, alongside management's focus on efficiency and scale benefits.

"We continue to like the growth story here, underpinned by long-term structural drivers," the broker added. "The group is proving itself adept at balancing its growth ambitions with a focus on returns and today’s results provide further evidence of this