In a difficult office market, we can identify a couple of companies which have been doing well : - Servcorp (co-working), - and Shape Group (construction company focused on new build, fit-out and refurbishment of offices, mainly working on interior of offices).
Both companies had good FY 24 results and a high level of cash flow and free cash flow. Servcorp was able to increase its capacity, number of customers and its prices, while decreasing its costs. Shape main achievement was to significantly improve its margin (thanks to gross margin), reversing a negative trend since its listing.
These 2 companies continue to be worth analysing as they have a free cash flow yield above 10 % and a growth profile in the short term (cf order book for Shape and expansion for its number of co-locations for Servcorp).
Their good resistance, when the office market was quite tough, probably show that these companies have a limited cyclicity despite their exposure to the office market.
The level of risk of these 2 companies is also quite low as both have a high level of net cash (and generate high free cash flow). Another way to look at the risk : both companies have a beta lower than 1 (0.93 for Servcorp and 0.27 for Shape).
