Markus Matuszek of M17 Capital Management presented his thesis on International Workstation Group (UK: IWG) at European Investing Summit 2019.

Thesis summary:

IWG is the largest provider of workspace solutions with over 3,300 locations in 1,100 cities across the globe. In its 30 years, it has already undergone several economic cycles and thus makes sure not to repeat previously made mistakes. Its average unexpired lease term is around 7 years (WeWork at ca 15 years), its (stable) services income represents ca. 27% of total sales (WeWork ca 5%) and most importantly its location mix consists of over 80% of all workstations placed in mature locations, operating for at least 3 years with an average occupancy rate of 74% and generating a 21% contribution margin, enabling IWG to remain profitable while adding new locations, renovating existing ones or closing unprofitable centers. IWG creates value by digitalization of its supply chain and center operations and by moving towards a more asset-light setup in which franchisees are required to shoulder long-term lease obligations or landlords themselves cooperate with IWG in a revenue/profit-sharing arrangement. Management has confirmed to continue this path for several regions (e.g. sales/IPO of assets in the US, Canada and Latam) after the closing of its most recent transaction in Japan. Applying recent transaction multiples as well as IWG’s 10 year price-to-cash flow average of 7.4x, we value IWG currently at GBP 9.40 per share, an upside of 135% from its current price. Given where we are in the economic cycle and acknowledging that the value creation can take up to 2-5 years, an investor can expect an IRR of 13-34% over that period. Its dividend yield of 2% p.a. (excl buybacks) and the fact that IWG has basically concluded its accelerated 2016-2019 renovation plans in key cities should provide EPS stability and hence a floor to the share price.

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About the instructor:

Markus Matuszek is an investor and entrepreneur. He is the founder, Managing Partner and Chief Investment Officer of M17 Capital Management, a market neutral value equity long/short fund, biased towards European ideas (listed securities only). Prior to that he ran asset management and advisory firm Hermes Capital Management as well as he was a managing partner at Gabelli & Partners. He has been investing in listed securities, private companies and real estate over 17 years with a solid track record. Earlier in his career, Markus was a senior advisor / interim manager with extensive advisory and hands-on work in strategy, restructuring, organizational change, corporate finance and risk management, M&A advisory, private equity, real estate and investment management in Western Europe, Eastern Europe and the US. He started his professional career with McKinsey & Company. His education includes a M.A. in finance, accounting and controlling from the University of St. Gallen (Switzerland), a master degree from CEMS and dual MBAs from Columbia Business School and London Business School (with honors). Furthermore, he studied at the Warsaw School of Economics and University of Geneva and received several merit-based fellows and scholarships. He is also a CFA charterholder and a jury member for the CFA Institute’s Research Challenge in Switzerland as well as for EMEA.