A near doubling of profits for office space supplier Workspace (WKP) has prompted the company to tap up its investors for money to expand its offering.
Its results for the year ending 31 March 2018, show pre-tax profit up to £170.4m from £88.8m the prior year and it has also hiked its dividend by 30% to 27.39p.
As seen earlier this year when a bidding war erupted over office service company IWG (IWG) with three potential private equity buyers emerged, this is a hot sector.
SPENDING MONEY WISELY?
Now Workspace is looking to raise around £190m by issuing over 16m new shares. The last time the company raised equity in this way was in 2014, which brought in £94m. The equity raise news prompted the share price to drop 4.6% to £11.11.
It will use the money to keep its ongoing pipeline of projects going, it is attempting to deliver 773,000 square feet of new space for £152m. It has already spent £65m on this endeavour so far. Workspace says these projects are in locations in London with ‘significant customer demand’ and will benefit from ‘clustering’ with other properties owned by the company.
Workspace also needs the additional firepower to keep its acquisition strategy going, buying properties across London and using its model to drive rental growth.
COMPETITION RISING
US-based WeWork has succeeded by offering shorter term lets as companies are unwilling to commit to longer leases. Workspace’s CEO Jamie Hopkins seems to understand this model, saying ‘flexible working continues to gain significant attention and our well-connected, inspiring spaces are driving strong customer demand’.
Joe Brent, analyst at broker Liberum, says flexible office space is the fastest growing segment in the office market. He believes that Workspace’s freehold model, scale and customer service enhance its competitive position serving this market.
However, Paul Gorrie, analyst at Numis, questions the equity raise the company announced. Gorrie adds ‘it appears to effectively backfill historic acquisitions and capital expenditure rather than fuelling future growth’.
Using Numis’ forecasts Workspace trades on 26.5-times 2019’s earnings while paying a prospective dividend yield of 2.9%.
