Why Ellerston Capital calls Servcorp an undiscovered compounding story
Servcorp's shares have doubled since 2023 without becoming more expensive, as earnings growth has kept pace, though Middle East conflict sentiment has recently weighed on the stock.
30 Apr 2026 · 6 min read
In short
Servcorp's underlying net profit before interest and tax grew 23% to $69.1 million in FY2025, with earnings per share up 35% to 53.8 cents.
The company holds approximately $144 million in net unencumbered cash against a market capitalisation of only around $700 million.
Servcorp's share price has recently softened on broader market concerns about the Iran-US conflict, given investor focus on its Middle East operations.
Premium coworking and serviced office provider Servcorp has delivered one of the more understated re-ratings on the ASX, with Ellerston Capital's April 2026 Article noting shares have climbed from $3 in 2023 to around $6.62, yet because earnings have kept pace, the stock is no more expensive today than at the lower price, an undiscovered story the manager now holds among its top ten positions.
Founder-led, cash-rich, and structurally undervalued
Tamim Funds Management's August 2025 Monthly Report detailed the FY2025 result underpinning that re-rating: underlying net profit before interest and tax up 23% to $69.1 million, operating revenue up 11% to $352.1 million, and earnings per share up 35% to 53.8 cents, with net tangible assets per share up 22% to $2.17 and FY2026 dividends expected to be not below 30 cents per share. Wentworth Williamson's September 2025 Monthly Report highlighted the balance sheet strength behind the growth, with approximately $144 million in net unencumbered cash against a market capitalisation of only around $700 million, leaving the stock trading on an estimated forward price-to-earnings multiple of around 11 times with a roughly 6% dividend yield.
The earnings multiple hasn't changed. This is an undiscovered story.
— Ellerston Capital, Article, April 2026
Monash Investors' August 2025 report captured the flip side of the strong run: after the shares doubled in little more than 18 months, the manager viewed Servcorp as a sell candidate once headline earnings multiples were adjusted for lease accounting rules it believes overstate the net profit line, and for tax given the company's considerable foreign earnings and largely unfranked dividend, significantly reducing its position to redeploy into more prospective opportunities. Tamim Funds Management took some profits above $7.00 after buying under $3.00 almost two years earlier, banking a total return including dividends of around 170%, while still seeing further upside in the remaining position.
What managers are watching next
Ellerston Capital's most recent reports flagged a specific near-term risk: shares declined 5% in a month largely on broader market concerns about the escalating Iran-US conflict, given investor focus on Servcorp's Middle East exposure, even though the manager continues to view the region's operations as an important growth driver supported by strong occupancy and favourable macro tailwinds. With the majority of customers contracted on annual terms limiting near-term volatility, and Ellerston maintaining that the stock's valuation disconnect persists given a floor network that would be difficult and costly to replicate, geopolitical sentiment toward the Middle East remains the main swing factor for the stock.
Questions
Why does Ellerston Capital call Servcorp an undiscovered story?
Ellerston Capital notes Servcorp's shares have climbed from $3 in 2023 to around $6.62, but because earnings growth has kept pace with the share price, the stock's earnings multiple hasn't changed, meaning it remains no more expensive today despite the strong run.
Why did Monash Investors view Servcorp as a sell candidate?
Monash Investors argued Servcorp's headline earnings multiples needed to be adjusted for lease accounting rules it believes overstate net profit, and for tax given the company's considerable foreign earnings and largely unfranked dividend, leading it to significantly reduce its position after the stock doubled.
Why has Servcorp's share price recently softened?
Ellerston Capital attributes recent weakness to broader market concerns about the escalating Iran-US conflict, given investor focus on Servcorp's Middle East operations, even though the manager views the region as an important growth driver with strong occupancy levels.
5 managers, 14 comments, with each manager's latest recorded position.
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