When Boring Is Beautiful on the ASX

When Boring Is Beautiful on the ASX

9 May, 2024 | Stock Insight

While flashy industries and businesses often capture the imagination of investors, it’s the understated, “boring” businesses that often form the backbone of solid portfolios.

These companies may not make headlines, but their stable, predictable revenue streams and resilient business models, serve as the bedrock of many portfolios. Renowned investors, such as Warren Buffett and Peter Lynch, have often lauded the virtues of these unglamorous yet resilient enterprises.


Buffett, the “Oracle of Omaha,” champions the philosophy of investing in businesses with enduring competitive advantages and predictable cash flows. His conglomerate, Berkshire Hathaway (NYSE: BRK), thrives on acquiring and holding onto such boring yet dependable companies like insurance giants and consumer brands.

Similarly, Lynch, known for his prowess at Fidelity Magellan Fund, advocated for investing in what you know and understand. He favoured businesses with simple, understandable models that consistently deliver results, often found in industries like utilities or consumer staples.

Investors flock to these stalwarts for their reliability and ability to weather economic storms with steadfast resolve.

Across the globe, stalwarts like Procter & Gamble (NYSE: PG) in consumer goods, Johnson & Johnson (NYSE: JNJ) in healthcare, and Berkshire Hathaway in diversified holdings exemplify the power of boring businesses. These companies thrive not on the hype of innovation, but on the bedrock of reliability, making them sought-after gems in any investor’s portfolio.

The Company


A little closer to home, small cap company Servcorp Limited (ASX: SRV) fits this mould.

It is a leading provider of Executive Serviced and Virtual Offices, Coworking, and IT, Communications, and Secretarial Services. The company was founded in 1978 and is still led to this day by Alf Moufarrige. Servcorp began as a solution to the overhead costs of traditional office setups. Since then, it has expanded globally, pioneering concepts like the Virtual Office in 1980 and boasting a presence in 129 locations across 40 cities in 20 countries. With a commitment to supporting businesses’ growth and success, Servcorp offers premium locations, state-of-the-art facilities, cutting-edge technology, and dedicated support teams.

The Headline Thieving Competitor

In a highly competitive market, one rival readers will likely be familiar with for all the wrong reasons is global player WeWork.

Founded in 2010 by Adam Neumann and Miguel McKelvey, WeWork initially thrived by offering shared workspaces tailored to freelancers, startups, and companies seeking flexible office solutions. Its innovative business model, fueled by low-interest rates, saw rapid growth, achieving unicorn status with a valuation exceeding US$1 billion by 2014. However, intensified scrutiny ahead of its planned IPO in 2019 exposed concerns over leadership, spending habits, and governance, prompting Neumann’s resignation and a postponement of the IPO.

SoftBank Group’s subsequent bailout and restructuring efforts failed to reverse the company’s fortunes, exacerbated by the COVID-19 pandemic’s impact on office space demand.

Despite a strategic pivot towards catering to larger corporate clients, WeWork’s market capitalisation plummeted post-IPO, accompanied by substantial net losses. With its sustainability questioned amid a changing real estate landscape and macroeconomic challenges, WeWork faces an uphill battle to regain investor trust and viability in an environment of excess supply, diminished demand, and heightened competition.

Since then, the outed CEO, Neumann, has attempted to buy back the business making a bid of over US $500 million and making a Bunnings style offer to beat any other deal by 10%.

It now appears that attempted repurchase has failed with a bankruptcy court judge approving a deal whereby WeWork’s creditors take control of the reorganised entity and invest fresh capital.

The longevity of Servcorp, experienced management and responsible cost control give us confidence that the business will not suffer the same fate as WeWork.

Saudi Arabia Listing

Servcorp is in the process of restructuring its operations in the Middle-East.

The company recently updated the market with details regarding the establishment of a new holding company for the region. Securing a regional headquarters licence from the Saudi Ministry of Investment marks a milestone, granting Servcorp full support for its international initiatives through its Saudi entity.

This progress aligns with Servcorp’s strategy for a planned listing of its Middle East and European operations in 2025. With Servcorp retaining a 55% stake in the new entity, profit targets for 2024 are on track, supported by the construction of four new locations to meet demand. The potential listing promises value enhancement for shareholders, leveraging strong growth market multiples in Saudi Arabia.

A Strong Financial Position

Servcorp reported their first half results in February with total revenue growing by 8.5% to $157 million.

The company stated that the effective execution of Servcorp’s business model, centred around delivering prestigious experiences and tailored workspace solutions to meet each client’s specific needs, not only propelled revenue growth but also facilitated steady improvements in client satisfaction and retention, resulting in heightened business efficiency and reduced business development costs. This was a key driver in the 31% increase in earnings per share for the first half to 20.2 cents.

Servcorp is supported by a strong cash position with $95 million in cash on hand as of 31 December 2023. Furthermore, it has consistently returned capital to shareholders paying a dividend of $0.12 per share in each of the previous 6 months with a dividend yield of 5.71% at the time of writing.

The company reaffirmed its FY24 guidance despite the highly competitive market. Servcorp expects an additional 7 new operations to commence in FY24 which supports the forecast underlying net profit before tax between $50 million and $55 million with the expectation to produce at least $70 million in free cash flow.

The TAMIM Takeaway

Servcorp epitomises the essence of a “boring” yet robust business model that stands the test of time.

The company’s global footprint highlights its strong geographical diversity and resilience in navigating diverse market landscapes. As the company continues to deliver premium solutions tailored to meet the evolving needs of businesses worldwide, its virtual office tailwinds position it for sustained growth and success. Moreover, Servcorp’s dedication to returning capital to shareholders, underscored by consistent dividend payments and a strong financial position, reinforces investor confidence in its long-term sustainability.

Amidst the market headlines and high multiples of flashy technology like AI, Servcorp’s steadfast performance and prudent management instil confidence in a company that can navigate challenges and deliver value to stakeholders, making it a compelling investment proposition for steady, dependable enterprises.

Disclaimer: Servcorp Limited (ASX: SRV) is currently held in TAMIM Portfolios.

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