Winter star IWG still in the City's good books

Former takeover target and WeWork's more sensible rival highlights its investment credentials. 

A form book showing share price growth for nine of the past 10 winters means today's trading update from Regus owner IWG (LSE:IWG) is one that investors need to pay attention to.

The serviced office provider's shares have advanced by a seasonal average of 25.6% across the past decade, which is why it is a long-time member of our annual Aggressive Winter Portfolio. Unsurprisingly, IWG has retained its place in the 2019/20 line-up, which also features JD Sports (LSE:JD.), Ashtead (LSE:AHT), Bodycote (LSE:BOY) and new entry Synthomer (LSE:SYNT).

And after just three working days of the winter period, IWG has wasted no time in highlighting its credentials. Most notably, the company's share price rose sharply yesterday after it entered into a strategic partnership in Switzerland with two "seasoned" real estate investors. It's a move it hopes will replicate the success of two similar franchising deals in Japan and Taiwan.

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This was backed up by today's trading update, in which IWG showed strong recent sales activity. Open centre revenues - a good indicator of future performance — rose by 15.5% in the third quarter and by 15.4% across the financial year.

All regions are contributing strongly to the performance, with momentum around franchising activities meaning the company now benefits from having 27 partners across 22 countries.

Shares in the FTSE 250 company have responded by rising more than 90% so far this year, with the performance since the end of October already showing a 3% improvement.  Its success is in contrast to the troubles at younger rival WeWork, which recently pulled plans for a stock market listing amid concerns about its valuation and continuing losses.

Source: TradingView Past performance is not a guide to future performance

Analysts at Credit Suisse are backing IWG shares to show further growth, with the bank's 440p target price representing a potential winter portfolio gain of 15% if achieved by the end of April. 

Counterparts at JP Morgan Cazenove increased their price target by 10p to 410p today, which partly reflects a substantial reduction in net debt to £301 million. The proceeds from the sale of the IWG business in Switzerland should mean a further improvement before the end of the year.

IWG added 180 new locations during the first nine months of 2019, with about one-third of these sites through partnering. The addition of 5.2m sq. ft. of new space takes the group's total network at the end of September to 60.4m sq. ft. and 3,348 locations worldwide.

The company, which is led by long-time CEO Mark Dixon, said: "We remain very confident in the structural, long-term growth in the flexible workspace market and IWG's leading position within it, which we continue to extend.

"We believe our transition to a franchising model by partnering with a growing and diverse range of third parties will deliver a quicker and more asset light approach to growth, which benefits all stakeholders."