RBC Capital downgrades IWG, says risk/reward unfavourable
RBC Capital Markets downgraded its stance on IWG, formerly Regus, to 'underperform' from 'sector perform' and cut its price target to 200p from 220p, saying the risk/reward was unfavourable.
FTSE 250
20,084.79
16:44 29/04/24
FTSE 350
4,481.53
16:44 29/04/24
FTSE All-Share
4,435.18
16:59 29/04/24
IWG
188.50p
16:34 29/04/24
RBC said that while it likes the market position and long-term fundamentals, earnings per share momentum has been negative, private equity bids have not been forthcoming and management credibility remains low.
"The aggressive expansion continues, which is still dampening profits ensuring that the story remains jam tomorrow. We move from sector perform to underperform, believing risk reward is not in favour and that it will take time to rebuild confidence."
RBC noted the termination of talks with three potential suitors earlier this month, as IWG reckoned none were capable of delivering an executable transaction at a recommended price.
Shares in IWG tumbled on 6 August when it announced that talks with Starwood, Terra Firma and TDR had been called off and said operating profit fell 31% in the second quarter. Back in June, the company warned that annual profit would be up to £20m lower than it had expected because of a weak performance at its UK business and short-term losses from opening new sites.
RBC said the recent profit warnings raise lots of questions about the resilience and visibility of the business and of the current demand and competitive environment.
"With aggressive opening continuing, which dampens profits and cashflow, we think it is going to be tough for investors to give the benefit of the doubt on the long-term potential," it said.
At 1111 BST, the shares were down 1.6% to 235p.