IWG PLC

IWG PLC (IWG) is a Switzerland-headquartered multinational company that provides workspaces, communities and services to companies to find workspaces according to their needs and caters to demand by start-ups, small and medium-sized enterprises and large multinationals in over 1,000 towns and cities across more than 110 countries. The operations are differentiated in four geographical segments, namely United Kingdom, Asia Pacific, EMEA and the Americas.

Trading Update
In the third quarter trading statement for the period ended 30 September 2019, driven by the Americas and EMEA and encouraging contributions from centre additions, total revenue increased by 9.4% at constant currency (13.2% at actual rates) to £692.3m, while revenue growth across all open centres increased by 15.5% at constant currency (19.5% at actual rates). Pre-2018 occupancy improved year-on-year, up by 2.2 percentage points on a like-for-like basis to 76.4%, while pre-2018 revenue in the three months to 30 September increased from £552.8m to £591.4m in the comparable quarter last year.

Financial Highlights (H1 FY19, £m)

(Source: Company Filings)

Driven by 18% constant currency growth in EMEA in reported revenues and 13% in the Americas, revenue increased by 10.3% at constant currency basis to £1,302.4 million. The adoption of IFRS 16 resulted in an increase in reported gross profit to £293.8 million, while gross profit was £196.3 million, up from £183.2 million in the corresponding period in 2018, on IAS 17 basis. EBITDA rose by £18.9 million to £189.8 million, up 6% at constant currency. Operating profit for the six months to 30 June 2019 was £50.6 million while operating profit under IFRS 16 was £148.3 million, reflecting strong operating profit improvement from the Americas. Profit after tax was £294.9 million, and earnings per share attributable to ordinary shareholders were 32.9p.

Share Price Commentary

Daily Chart as at 05-November-19, before the market closed (Source: Thomson Reuters)

On 5 November 2019, at the time of writing (before the market closed, GMT 9:15 am), IWG shares were trading at GBX 388.10, down by 1.28% against the previous day’s closing price. Stock's 52 weeks High and Low are GBX 428.70/GBX 199.00. The company's stock beta was 1.53, reflecting more volatility as compared to the benchmark index. Total outstanding market capitalisation was around £3.53 billion, with a dividend yield of 1.64 per cent.

Conclusion
Open centre revenue, which is a good indicator of future performance, increased by 15.4% for the nine months to 30 September 2019 and 15.5% in the third quarter, at constant currency, and the group has a very strong pipeline of franchising opportunities across the globe, with excellent progress made in its pivot to a franchising business model. The group expects the positive momentum to continue in its business operations, despite global, political and economic uncertainty.

Based on the above rationale, we have given a "HOLD" recommendation at the current price of GBX 388.10 (as on 5 November 2019, before the market closed).

Ascential PLC

Ascential PLC (ASCL) is London-headquartered specialist, global information company that helps its clients to understand the demands of consumers and make the decisions that will enable their business to grow and thrive by unlocking the information, insights, connections, data and digital tools. The operations of the group are differentiated in four operating segments, namely Product Design, Marketing, Sales and Built Environment & Policy.

Financial Highlights (H1 2019, £m)
Reflecting strong growth by Flywheel, proforma revenue growth grew by 11.0% and due to double-digit growth from both Cannes Lions and MediaLink and 9% growth from WGSN, revenues in the period grew to £236.2 million (H118: £188.9 million), an increase of £47.3 million or 25.0% and organic growth was 8.7%. Reported operating profit of £36.0 million, up by 23.3% (2018: £29.2 million) and adjusted operating profit grew to £67.2 million from £55.9 million in the prior year, while adjusted EBITDA increased by 21.1% to £76.7 million (H1 2018: £63.3 million. Adjusted EBITDA margin reduced to 32.5%. Total diluted earnings per share on continuing operations of 5.2p per share was 33.3% ahead of the prior-year figure of 3.9p, while adjusted diluted earnings per share of 11.5p per share on continuing operations were 22.3% ahead of the 9.4p per share recorded for H1 2018. The company declared an interim dividend of 1.8p per share (H1 2018: 1.9p), while it generated an adjusted operating cash flow of £73.8 million (H1 2018: £73.7 million).

Valuation Methodology
Method:  Price/Cash Flow Approach (NTM)


Share Price Commentary

Daily Chart as at 05-November-19, before the market closed (Source: Thomson Reuters)

On 5 November 2019, at the time of writing (before the market closed, GMT 11:17 am), ASCL shares were trading at GBX 331.8, down by 5.15% against the previous day’s closing price. Stock's 52 weeks High and Low are GBX 418.00/GBX 327.40. The company's stock beta was 0.34, reflecting less volatility as compared to the benchmark index. Total outstanding market capitalisation was around £1.41 billion, with a dividend yield of 1.03 per cent.

Conclusion
The group looks overvalued in comparison to its industry as its forward price/earnings was 17.9x against the industry median of 13x, while the EV/sales multiple was 3.5x versus the industry median of 1.1x. The company has noted that political and regulatory changes may disrupt patterns of trade, impose operating inefficiencies, while any severe recession or downturn could lead to reduced customer demand for its products and services. Reduction in market share and revenue could be faced due to increased competition.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the closing price of GBX 349.40 (as on 4 November 2019), while we look for any upcoming catalysts in the near term.
 
*Peers of the company are Pearson PLC, Informa PLC, Wolters Kluwer NV, Relx PLC, Daily Mail and General Trust PLC and Auto Trader Group PLC
*All forecasted figures and peers have been taken from Thomson Reuters.

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