Servcorp Limited (ASX:SRV) reports profit down 75%, is it a buy?

Servcorp Limited (ASX:SRV) has just reported that profit was down 75%.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This morning, serviced office provider Servcorp Limited (ASX: SRV) reported its annual result for the 12 months ending 30 June 2018 showing that revenue was down 5% to $314.4 million.

In constant currency terms revenue was down by only 1%. The company said that the flexible workspace industry has seen unprecedented change, with commercial real estate experiencing significant disruption bringing new competition & challenges.

Like for like floor occupancy was 72% at 30 June 2018, down from 74% at the end of FY17. All floors occupancy was also down 200 basis points to 71% at 30 June 2018.

The USA segment was a key detractor from the result, excluding the USA like for like performance was flat compared to FY17.

Servcorp reported that net profit before tax (NPBT) was $32.1 million – 33% lower than FY17. This includes a one-off $5.8 million strategic initiative expense.

Net profit after tax (NPAT) declined by 75% to $10 million. A $13 million non-cash adjustment relating to the USA deferred tax asset following the USA Federal corporate tax rate reduction was the main culprit for the large decrease. Earnings per share (EPS) declined by just over 75% to 10 cents per share.

Pleasingly, the full year dividend was maintained at 26 cents per share. Management also provided a forecast that the FY19 dividend would be 26 cents per share too.

Operating cash flow fell by 8% to $50.1 million and cash on the balance sheet declined by 10% to $97.1 million.

Outlook

Servcorp believes that global flexible workspace will grow from 5% of all commercial real estate to 20% in the medium-term. In FY19 alone Servcorp estimates it will add around 7.5% capacity including the first location in Germany. Servcorp wants to be the premium provider in a more mainstream industry.

The company's Board forecast that NPBT will be between $34 million to $40 million in FY19, representing growth of approximately 6% to 25%.

Foolish takeaway

Based on a 26 cents per share full year dividend Servcorp offers a partially franked dividend yield of 6.4%.

This yield is attractive in this low-interest era. However, it seems as though the industry is about to get a lot more supply and demand. If the supply is installed first then Servcorp could face price competition in the shorter-term.

Servcorp is an interesting business, although it is not in a sector that really aligns with my own style of investing.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Servcorp Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

IPO written in dark blue with a yellow background.
Financial Shares

ASX fintech stock backed by Mastercard slumps 9% on debut

Meet the ASX's newest fintech company.

Read more »

A young woman smiles as she rides a zip line high above the trees.
Share Gainers

Here are the top 10 ASX 200 shares today

ASX investors kicked off the trading week in style today.

Read more »

young woman reviewing financial reports at desk with multiple computer screens
Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers believe that now could be the time to snap up these stocks.

Read more »

A businesswoman exhales a deep sigh after receiving bad news, and gets on with it.
Share Fallers

Why Bell Financial, IPD, Megaport, and Resolute Mining shares are falling today

These shares are starting the week in the red. But why?

Read more »

Person pointing at an increasing blue graph which represents a rising share price.
Share Gainers

Why Liberty, Lovisa, Novonix, and SG Fleet shares are storming higher today

These shares are starting the week strongly. But why? Let's find out.

Read more »

Shot of a young businesswoman looking stressed out while working in an office.
Industrials Shares

This ASX share is tumbling 13% on reduced earnings forecast

Earnings are expected to fall in the first half, much to the dismay of the market.

Read more »

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.
Mergers & Acquisitions

Guess which ASX All Ords stock just rocketed 23% on a $1.2 billion offer

Investors are piling into the ASX All Ords stock amid a $1.2 billion takeover bid.

Read more »

Excited group of friends sitting on sofa watching sports on TV and celebrating.
Technology Shares

Why today is a big day for Pro Medicus shares

Records are being broken by this share on Monday. What's going on?

Read more »