Workspace smashes City forecasts

Being in the right place at the right time is helpful in business. It's certainly been a boon for Workspace. With London in the midst of a property boom and the new Conservative government pledging support for small and medium sized companies, the office space provider is flying, and knockout full-year results have attracted further buying interest.

Workspace kept up the pace of progress seen in the first half through the following six months. The property portfolio is now worth over £1.4 billion, up 30%, driving net asset value (NAV) up by 42% to 703p in the year ended 31 March. That's been driven largely by rental pricing - like-for-like rent per square foot rose by 16% to £18.37 last year.

Group net rental income grew by 15% to £57.7 million, and profit before tax surged 43% to £360 million, giving adjusted earnings per share (EPS) of 17.2p, up 24%. The dividend rises by 13% to 12.04p.

"London's business community is evolving rapidly and we are seeing increased demand from our core NGC [new and growing companies] customer base for space and connectivity beyond established locations," said the firm, which paid £76 million for five properties in the capital during the period. It's bought another two since year-end. The latest, announced alongside these results, is Angel House in Islington for £34 million.

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Ten non-core industrial estates were sold in October for £44 million, an £11 million premium to their book value at March 2014. Another seven earmarked for sale are worth an estimated £20 million.

"London's economy continues to thrive, boosted by the contribution from its new and growing companies, and we don't see that momentum slowing any time soon," reckons Workspace. And broker Liberum believes the story has further to run, too.

"The outlook for further double-digit increases in rent looks achievable, with the prospect to double earnings within three years," it says. "Workspace continues to generate one of the highest total returns (+44% NAV growth and dividend yield in FY15) in the UK Real Estate sector at one of the lowest LTVs (19%)."

Workspace shares currently trade on a premium spot price/NAV of 1.31 times versus the sector on 1.06 times. But that's more than justified by "latent potential to sustain double-digit growth," reckons Liberum, which sees over 10% upside risk to consensus NAV in 2016 towards 850p. Its price target jumps from 836p to 1,100p.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.