Final FY19 results to end January show OnTheMarket (OTM) laying the groundwork and building a meaningful business challenger to the two main incumbent UK property portals. The drive to convert participating agents to paying contracts is now under way, with almost 1,000 branches signed to date, at an average revenue per advertiser (ARPA) of £337. Over half of these signings are for three- to five-years. Most of the balance are on shorter contracts, with the option to extend. It is this programme’s success that will determine the speed of the group’s transition into profit.
OnTheMarket |
Conversion commenced |
Final results |
Media |
13 June 2019 |
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Final FY19 results to end January show OnTheMarket (OTM) laying the groundwork and building a meaningful business challenger to the two main incumbent UK property portals. The drive to convert participating agents to paying contracts is now under way, with almost 1,000 branches signed to date, at an average revenue per advertiser (ARPA) of £337. Over half of these signings are for three- to five-years. Most of the balance are on shorter contracts, with the option to extend. It is this programme’s success that will determine the speed of the group’s transition into profit.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
01/17 |
15.6 |
1.0 |
(1.4) |
0.0 |
N/A |
N/A |
01/18 |
13.6 |
2.7 |
7.4 |
0.0 |
14.2 |
N/A |
01/19 |
14.2 |
(13.6) |
(22.5) |
0.0 |
N/A |
N/A |
01/20e |
28.5 |
(9.4) |
(12.0) |
0.0 |
N/A |
N/A |
01/21e |
54.3 |
7.9 |
10.1 |
0.0 |
10.4 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Driving ARPA to deliver profit
FY19 revenue was slightly short of our expected £15.0m, but the £11.8m EBITDA loss was better than our modelled £14.4m, as the marketing campaigns’ success meant less had to be spent. For FY20e we have broadly maintained our EBITDA forecasts on revenue trimmed by 11%. Revenues now cover operating costs before marketing spend. We have been cautious in our assumptions on ARPA, pushing them ahead 14% for the year, as much depends on the timing of contract conversions from free trials. The £337 average for the new signings compares with Rightmove’s latest published ARPA of £1,005. We also now publish our FY21e OTM projections, when a full-year of fee-paying-only customers will drive much stronger ARPA progress, transitioning the group to profit. Management indicates that the group has sufficient cash resource to get to this stage.
Traffic growth demonstrates value
OTM now has over 12,500 agent offices under listing contracts. Brand awareness and localised marketing and the expansion in the portal content – particularly ‘new and exclusive’ properties – are substantially increasing website traffic, with 25.4m visits in May 2019, up 8% on the previous high achieved in January. The number of leads delivered to agency branches is now up to 102/month (Rightmove: 171 FY18), with the ratio of leads delivered to cost clearly in OTM’s favour. The group’s salesforce (50 people from 15 at listing) is focused on engaging with agents on free trials to convert them to fee-paying customers, driving group ARPA and moving the group into profit.
Valuation: Overstating execution risk
The shares are trading at 1.7x our FY20e EV/revenue compared with Rightmove at 17.9x (10.1x average for a broader global property portal peer set). A DCF on a WACC of 10.2% implies a value of 375p/share vs 332p (October 2018) as we rolled the model forward. Given the potential variance of outcomes, we suggest an execution risk discount of 30% would be appropriate, indicating a price of 262p.
Minor changes to forecasts
The main differences between our FY19 forecasts and the outturn were a slightly lower revenue number (£14.2m versus our figure of £15.0m) and a better earnings performance. We had factored in a higher number for the marketing spend (other operating costs were broadly in line with our expectations). As set out at the time of listing, FY19 has been the year that OTM had to invest heavily to build the underlying base of participating agents and gain traction with the property-buying public in the UK. Both these objectives have been achieved.
For FY20e, the group needs to persuade the signed-up agents that the OTM is a credible alternative to the major incumbents. We have taken a slightly more cautious approach on the revenue forecast, trimming the FY20e figure from £32.0m to £28.5m, but all depends on the timing of conversions to fee paying customers and we are encouraged both by the level of ARPA being achieved in these negotiations and by the proportion of agents signing on to contracts of a good length, which will build far better visibility into modelling in future years.
Exhibit 1: Changes and new forecasts
EPS (p) |
PBT (£m) |
EBITDA (£m) |
|||||||
Old |
New |
% chg. |
Old |
New |
% chg. |
Old |
New |
% chg. |
|
2019 |
(27.4) |
(22.5) |
-17.9 |
(16.0) |
(13.6) |
-15.0 |
(14.4) |
(11.8) |
-18.1 |
2020e |
(12.5) |
(12.0) |
-4.0 |
(9.4) |
(9.4) |
0.0 |
(7.8) |
(7.5) |
-3.8 |
2021e |
- |
10.1 |
N/A |
- |
7.9 |
N/A |
- |
10.1 |
N/A |
Source: Edison Investment Research
We previously indicated that we expected the group to return a profit as the ARPA grows and for it to turn cash-flow positive in FY21. We have now formalised this by publishing our forecasts for that year.
Our modelling indicates the group has sufficient funding to see it through to that point. At the balance sheet of 31 January, the group had net cash (no debt) of £15.7m. As at 31 May, this figure was £10.2m.
Proving value
The big push to build market share, in this instance defined as the proportion of residential properties listed on the UK market with agents as at end May, has been successful enough for the group to have c 65% of market-leader Rightmove’s property listing volumes and 83% of Zoopla, the number two player. This has obviously only been possible by the strategy of offering free trials.
To convince agents to stay on the portal once their trial periods have expired, OTM has to demonstrate clearly that it is delivering good value for money and better value for money than those agents’ existing arrangements. Using the ARPA figure for those newly signed up of £337 per month, OTM provided an average of 30 leads per £100 in May 2019. The equivalent figure for Rightmove for 2018 was 17 leads per month per £100. However, Rightmove provides other services that agents find useful and OTM is now building and launching equivalents, so that any agents making the transition will find the process more seamless.
Growing the offering
There are three clear further revenue lines that will be added. As well as the additional services to be provided within the listing fee, such as the recently launched ‘Market Appraisal Guide’, OTM can also drive revenues through:
■
offering additional advertising options, such as enhanced property presentation and banner advertising, as is common with other portal operators;
■
opening the portal for third-party advertisers whose products and services are relevant to website visitors; and
■
listing new homes directly from the developers.
These options are all being addressed. The IT team has been expanded from 21 to 58 people to ensure the day-to-day work of the property portal team is not impeded by the need to continue development.
Management is open to small acquisitions in property technology, provided the pricing is sensible and it can add to the capability and profitability of clients.
Stressed market helpful
Somewhat counterintuitively, a difficult property market provides a useful backdrop, particularly as OTM looks to build market share. This is for two key reasons:
■
The ‘new and exclusive’ listing option works well for agents and their customers. Listing new-to-market properties on OTM’s portal for 24 hours in advance of any other portal means people with high purchase intent are more likely to visit the website (and hence the listing agent’s website) and subscribe to property alerts, so the quality of the leads is higher.
■
If agency branches are transacting less business, they will inevitably be examining closely each line of their expenditure. The high price of a Rightmove subscription and the regular increases in cost make it a key line item. If an agent can achieve a significant proportion of market reach for a much smaller fee, the decision to switch should become easier.
Exhibit 2: Financial summary
£'000s |
2017 |
2018 |
2019 |
2020e |
2021e |
||
31-January |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
15,631 |
13,553 |
14,172 |
28,500 |
54,250 |
EBITDA |
|
|
3,292 |
5,354 |
(11,750) |
(7,514) |
10,050 |
Operating Profit (before amort. and except.) |
|
2,324 |
3,887 |
(13,639) |
(9,723) |
7,685 |
|
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
(3,506) |
(1,436) |
(597) |
0 |
0 |
||
Share-based payments |
0 |
(13,290) |
(308) |
0 |
0 |
||
Reported operating profit |
(1,182) |
(10,839) |
(14,544) |
(9,723) |
7,685 |
||
Net Interest |
(1,351) |
(1,231) |
50 |
279 |
193 |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
973 |
2,656 |
(13,589) |
(9,444) |
7,879 |
Profit Before Tax (reported) |
|
|
(2,533) |
(12,071) |
(14,494) |
(9,444) |
7,879 |
Reported tax |
(1,486) |
(22) |
(6) |
1,889 |
(1,576) |
||
Profit After Tax (norm) |
(513) |
2,634 |
(13,596) |
(7,555) |
6,303 |
||
Profit After Tax (reported) |
(4,019) |
(12,093) |
(14,500) |
(7,555) |
6,303 |
||
Minority interests |
0 |
0 |
0 |
0 |
0 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
(513) |
2,634 |
(13,596) |
(7,555) |
6,303 |
||
Net income (reported) |
(4,019) |
(12,093) |
(14,501) |
(7,555) |
6,303 |
||
Average Number of Shares Outstanding (m) |
36 |
36 |
60 |
63 |
63 |
||
EPS - normalised (p) |
|
|
(1.4) |
7.4 |
(22.5) |
(12.0) |
10.1 |
EPS - normalised fully diluted (p) |
|
|
(1.4) |
7.4 |
(22.5) |
(12.0) |
10.1 |
EPS - basic reported (p) |
|
|
(11.3) |
(34.0) |
(24.0) |
(12.0) |
10.1 |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Revenue growth (%) |
- |
85.7 |
103.6 |
200.1 |
189.4 |
||
EBITDA Margin (%) |
21.1 |
39.5 |
-82.9 |
-26.4 |
18.5 |
||
Normalised Operating Margin |
14.9 |
28.7 |
-96.2 |
-34.1 |
14.2 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
3,601 |
3,672 |
4,078 |
4,453 |
4,931 |
Intangible Assets |
3,556 |
3,654 |
3,948 |
4,156 |
4,350 |
||
Tangible Assets |
45 |
18 |
130 |
297 |
581 |
||
Investments & other |
0 |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
5,972 |
3,727 |
18,777 |
12,435 |
20,439 |
Stocks |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
3,709 |
553 |
3,104 |
3,255 |
5,877 |
||
Cash & cash equivalents |
2,263 |
3,174 |
15,673 |
9,179 |
14,562 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(7,316) |
(5,454) |
(5,330) |
(4,883) |
(7,052) |
Creditors |
(5,937) |
(2,957) |
(4,548) |
(4,883) |
(7,052) |
||
Tax and social security |
0 |
0 |
(6) |
0 |
0 |
||
Short term borrowings |
(1,379) |
(1,217) |
0 |
0 |
0 |
||
Other |
0 |
(1,280) |
(776) |
0 |
0 |
||
Long Term Liabilities |
|
|
(11,256) |
(11,610) |
(233) |
(233) |
(233) |
Long term borrowings |
(11,256) |
(11,256) |
0 |
0 |
0 |
||
Other long term liabilities |
0 |
(354) |
(233) |
(233) |
(233) |
||
Net Assets |
|
|
(8,999) |
(9,665) |
17,292 |
11,771 |
18,085 |
Minority interests |
0 |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
(8,999) |
(9,665) |
17,292 |
11,771 |
18,085 |
CASH FLOW |
|||||||
Op Cash Flow before WC and tax |
2,896 |
5,354 |
(11,982) |
(7,514) |
10,050 |
||
Working capital |
(42) |
176 |
367 |
191 |
(442) |
||
Exceptional & other |
(3,506) |
(1,436) |
(597) |
0 |
0 |
||
Tax |
(1,486) |
0 |
(22) |
1,889 |
(1,576) |
||
Net operating cash flow |
|
|
(2,138) |
4,094 |
(12,234) |
(5,434) |
8,032 |
Capex |
(1,623) |
(1,538) |
(2,305) |
(2,585) |
(2,843) |
||
Acquisitions/disposals |
0 |
0 |
19 |
0 |
0 |
||
Net interest |
(937) |
(1,393) |
50 |
279 |
193 |
||
Equity financing |
0 |
0 |
28,186 |
1,246 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Other |
1,516 |
(252) |
0 |
0 |
0 |
||
Net Cash Flow |
(3,182) |
911 |
13,716 |
(6,494) |
5,383 |
||
Opening net (cash)/debt |
|
|
6,747 |
10,372 |
9,299 |
(15,673) |
(9,180) |
FX |
(30) |
0 |
0 |
0 |
0 |
||
Other non-cash movements |
(413) |
161 |
11,256 |
0 |
0 |
||
Closing net (cash)/debt |
|
|
10,372 |
9,299 |
(15,673) |
(9,180) |
(14,563) |
Source: Company accounts, Edison Investment Research
|
|
Research: Industrials
Following a disappointing 2018, Daldrup & Söhne has embarked on a strategic realignment. Although the realignment will take some time to bear fruit, the outlook for FY19 appears more promising and the financial position of the company should improve after the recently announced disposals. For FY19 Daldrup & Söhne is expecting group revenue of €40m and a breakeven performance at the EBIT level. Based on consensus forecasts, the company is trading on an EV/Sales multiple for 2019 of 1.2x, towards the bottom end of the range for its peer group (average 3.3x).