Why the Servcorp Limited share price is falling today

Servcorp Limited (ASX:SRV) stated the shared workspace industry is in a state of unprecedented transition.

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This morning shared office business Servcorp Limited (ASX: SRV) reported a net profit of $40.7 million on revenues of $329.6 million for the year ending June 30, 2017. The revenue was up 0.3% and profit up 3% compared to the prior year and since FY 13 Servcorp has nearly doubled its annual net profit.

The group will pay a final dividend of 13 cents per share, 50% franked, to take total annual dividends to 26 cents per share on full year earnings of 41.4 cents per share. The total dividend payout for the year was up an impressive 18%. The stock trades on around 15x its trailing earnings.

The group operates 155 office floors, across 55 cities, in 23 countries and also provides some IT and business administration support to the offices. The group grew total office numbers over the year at a healthy rate including opening 7 new floors over the year. However, occupancy of like-for-like floors as at June 30 2017 was 76%, while all floor occupancy stood at 73%.

If the occupancy rates are not high enough it may negate the growth in the number of offices available, which is probably why the revenue and profit result are largely flat on the prior year.

Its management team forecast a net profit between $45 million to $55 million in FY 2018, which would represent some reasonable growth on the prior year. The group also flagged that the shared workspace industry is in a state of "unprecedented transition" and that it is seeing "many new participants" competing for their share of the rising client demand fueled by the growth of the digital economy.

One fast-growing rival to watch out for is U.S giant WeWork, which is well funded and expanding aggressively around the world's major cities including in Australia.

The Motley Fool Australia has no interest in Servcorp. Tom Richardson has no interest in Servcorp. You can find Tom on Twitter @tommyr345 We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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