Wednesday tips round-up: Regus, Petrofac
Far from slowing down, after opening its 200th office centre in the first half of the year the provider of temporary office accommodation Regus is set to accelerate its expansion. A full 450 new centres are due to open this year and as many next year. The company does have its doubters however, given its ambitious growth plans. As well, the fact that 85% of its sales hail from overseas means that it is exposed to currency fluctuations - hence the flat profits before tax seen in the first six months. Operating margins at its mature offices however rose to 14.4% during the last reporting period, from 10.6%, showing just how profitable its business model can be.
At 26 times' earnings the shares trade on a "hefty" multiple, but that is distorted by a heavy investment programme. "The business is growing fast, with strong potential in developing markets. It may take a while for the benefits of that investment to show," but the stock is a "long-term buy" says The Times's Tempus.
Orders at oil field services group Petrofac keep piling up. The backlog of work reached $20.3bn in the first six months of the year, up from $14.3bn at the same stage last year. That is thrice the revenues forecast for all of this year. Unfortunately, the riskiness of the business is also on the rise. That is due to delays as contracts which were set to start in 2014 have gotten pushed back into 2015. At 11 times' forecast earnings and offering a dividend yield of 3.3% the company's allure is understandable but management has much to do to meet this year's consensus forecasts of $734m for pre-tax profits.
At the interim stage the company managed to obtain $188m in profits. As investors wait for those projects to be profitable net debt has also been piling up, more than quadrupling to about $1.3bn by the end of June, although it has since fallen thanks to asset sales. The Daily Telegraph's Questor column thinks that investors' cash would be better placed elsewhere. So "sell" says the investment column.
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