Review of International Working Group (IWG) Analyst Day
IWG held an Analyst Day Dec. 5th, 2023: Here’s the high level summary with notes from the Slide Deck:
IWG has a large scale advantage over its competitors, with over 3,500 locations in 120 countries.
The company's network effects create a virtuous cycle, as more businesses and individuals adopt flex-office solutions, the value of IWG's platform increases.
IWG's business model is fundamentally different from that of WeWork, which has struggled financially. IWG has flexible leases that are non-recourse to the holding company, and its managed and flexible offering has no leases.
Long-term, the flex-office market is expected to grow significantly, as businesses and individuals increasingly demand more flexible and cost-effective workspace solutions.
Valuation:
IWG's current EV is £2.4 billion. If the company can achieve its medium-term target of $1 billion in EBITDA and hold maintenance capex at $100 million, IWG could generate $900 million in pre-tax profit.
This would put IWG in line with other capital-light companies like Marriott and Hilton, which trade at EV/EBITDA multiples of greater than 15x.
At a multiple of 15x, IWG's share price could reach £10, which represents a significant upside from the current price of £1.57.
Long term trend favors “hybrid” approach that gives the most options to employees
This is a business with scale and network effects that favors IWG given it’s huge scale relative to to its next biggest competitor and it’s low cost position
IWG has 3 different divisions -1)Managed and franchised; 2)Company Owned ; 3)Worka - Digital Services
1.)Managed and Franchised
2.) Company Owned Operations - Legacy business with operating leverage
3.) Worka - “Pick and Shovels” for the Flex-office / Hybrid industry
Variant Perception / Why is IWG mispriced?
WeWork filed for bankruptcy Nov. 7th, 2023…The market is naturally wondering about the viability of Flex-office, but IWG is fundamentally different than WeWork:
There are 2 big differences between IWG and WeWork:
IWG has flexible leases which are non recourse to the Holding Company
The managed and flexible offering, which is the future of IWG, has NO leases!
Long term we think Flex office wins because it’s the most cost effective and it’s what employees want, but we are still early in that transition:
Valuation and Upside: Managed & Franchised + Company Owned = >$1bil in mid term EBITDA
The biggest driver of growth will be Managed $ Franchised: The rough math is every 1,000 locations = $100mm in per tax profit
Company Owned - stable with great operating leverage from occupancy growth:
Growth CapEx is coming down dramatically:
And maintenance capex has stabilized:
The business already delivers decent EBITDA:
And Net debt is falling
Guidance is for $1bil of medium term EBITDA run rate
The Current EV is £2.4bil so if IWG gets even close to the $1bil of EBITDA with $100mm in maint. capex, the business could generate $900mm in pre tax and re rate in line with other capital-light companies like Marriot and Hilton that trade >15x EV/EBITDA which would represent >10/share versus today’s price of 1.57.