Included in this article is numbers for office rent. On my calcs...

Included in this article is numbers for office rent. On my calcs if SRV reduce vacancy by their stated objective about $20-24m growth will fall to the bottom line, a similar number I have previously posted. They have allowed this year to do that so big upgrade could be on the cards in about 6 months time.....

Servcorp downgrades but still in a good space

by:TIM BOREHAM
From:The Australian
May 20, 20139:40PM

Source: The Australian

Servcorp (SRV) $3.55: If the serviced-office sector is a barometer of the white-collar economy, then Servcorp's needs a gentle tap because the readings are a tad baffling. The world's second-biggest operator, Servcorp yesterday warned full-year pre-tax profits would be more like $27 million than the guided $33m.

According to chief executive Alf Moufarrige, Servcorp is "booming" in troubled Europe, as well as the Middle East and Japan. Locally, Perth and Sydney are subdued and so is Singapore and Honkers.

Moufarrige isn't using exogenous factors -- and political uncertainty is a popular one -- as an excuse. "I don't want a reason, I want a result," he thunders.

One remedy is joining rivals with old-fashioned price cutting. According to Moufarrige, Servcorp's vacancies are running at an unacceptable 25 per cent, or 1000 offices.

Typically an office generates $4000 a month of revenue, "so even if we halved that it would up our profit quite substantially".

Servcorp shares fell 5.5 per cent, but Moufarrige argues the downgrade is well short of a "disaster" and the expected second-half number of $14.5m is still 16 per cent up on the previous period.

Servcorp has doubled in size across the past three years and now boasts 132 floors in 21 countries. Moufarrige admits management struggled to keep pace with this growth but balance sheet-wise there's no strain, with no debt and $99m of cash.

We accept Servcorp is in a nice space (literally) with its global presence and assign a long-term buy call on the back of its solid, low-key listed history.