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RBC Capital cuts rating for IWG to ‘underperform’ as it thinks “risk reward is not in favour”

Back at the start of August, IWG - formerly known as Regus - said it had abandoned takeover talks with three remaining bidders saying none were capable of delivering an executable transaction at a recommendable price
IWG office space
RBC's analysts also reduced their target price for IWG shares to 200p from 220p, with the stock currently trading at 228.90p

RBC Capital has cut its stance for serviced offices group IWG PLC (LON:IWG) to ‘underperform’ from ‘sector perform’ as it thinks “risk reward is not in favour and that it will take time to rebuild confidence” after recent multiple takeover moves by private equity (PE) firms were terminated. 

Back at the start of August, IWG - formerly known as Regus - said it had abandoned takeover talks with three remaining bidders - Starwood Capital European Operations, Terra Firma Investments and TDR Capital - saying none were capable of delivering an executable transaction at a recommendable price.

READ: IWG shares plummet as it ends takeover talks with three suitors

In a note to clients, RBC’s analysts said it has adjusted forecasts for IWG to reflect the group’s earnings warning during the bid process and for forex movements.

They pointed out; “We have taken a conservative view, given H1 trends and the likelihood of continued investment in organic openings, along with marketing/sales spend and a tough UK market.”

The analysts said their earnings per share (EPS) forecasts for IWG come down by around 20% for 2018 and 2019, taking them below consensus.

They said it should be noted that the 2018 EPS estimate is similar to the level in 2015, and EPS momentum has continued to be negative.

The analysts concluded: “IWG is significantly bigger in terms of sales than its nearest peer, while we continue to believe in the structural drivers of the flexible workspace offer over the long term. However, the recent profit warnings raise many questions about the resilience and visibility of the business and of the current demand and competitive environment.”

They added: “With aggressive opening continuing, which dampens profits and cash flow, we think it is going to be tough for investors to give the benefit of the doubt on the long-term potential.”

The analysts also reduced their target price for IWG shares to 200p from 220p, with the stock currently trading at 228.90p, down 4.1% on Wednesday’s close.

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