In late afternoon trade, shares of serviced and virtual office provider, Servcorp Limited (ASX: SRV), were nearly 4% higher following the release of a solid half-yearly report this morning.
For the six months to 31 December 2014, Servcorp's revenue jumped 10% on the prior year, to $129.86 million, whilst net profit after tax climbed 36% – a sign of strong margin expansion. Earnings per share also increased 36% to 16 cents.
Net profit before tax on Like for Like floors was $21.19 million, up 39% whilst occupancy rates for floors more than a year old were 80%.
Pleasingly, operating cash flow jumped 61%, to $29.25 million, with cash and investments of $94.20 million, as at 31 December 2014.
Operating 139 floors in 52 cities across 21 countries, Servcorp derives approximately 80% of revenues and profits offshore.
The company continued its strong record of increasing dividends by declaring an 11 cents per share payout with 20% franking. Surprisingly, it said it expects the final dividend will also be 11 cents per share, with an anticipated 30% franking. The interim dividend will be payable on 1 April 2015.
Servcorp reaffirmed guidance for the remainder of financial year 2015, saying net profit before tax would increase by no less than 15%, and said future earnings should benefit from a weaker Australian dollar. New floor opening costs, in relation to landmark floors, would temper profit growth in the second half of the current financial year, and into 2016.
Should you buy Servcorp shares?
As we noted late last year, Servcorp could be a great long-term buy to hold stock for both its income and capital gains potential, so long as you're prepared for some cyclicality in profits and volatility in share price. At today's price of around $5.91, Servcorp shares trade on a forecast price-earnings ratio of around 19 and dividend yield of 3.7% with partial franking, which is very appealing in the current low interest rate environment.
