Get into letting with high-yield Belvoir

This is good news for Belvoir Lettings (BLV), which operates a franchising service that allows letting agencies to operate under its banner. Since it was founded in 1995, the business has grown quickly, making a string of acquisitions that allowed it to develop a multi-brand strategy that includes estate agency services as well as lettings. The latest acquisition of Northwood GB, announced in early June makes the group the UK's leading franchise letting agent.

Belvoir will pay up to £22m for Northwood GB, the largest remaining independent lettings franchise. This will add 86 outlets nationwide to its franchise network, taking the total to 301. The final price paid for Northwood will be based on an undemanding eight times 2018 cash profits with the total capped at £22m. Debt, new shares and a £2.5m placing at 112p have been used to fund an initial payment for the business.

A significant earnings boost is expected from the purchase. Broker Cantor Fitzgerald expects the deal will add 9 per cent to forecast EPS in the current year and just over 14 per cent for 2017. Importantly, this will mean earnings will cover Belvoir's generous dividend, so the market is likely to perceive the shares as a more secure yield play, raising the potential for a re-rating.

Northwood will retain its brand name partly because it is associated with an extremely successful rental scheme for landlords. This is a guaranteed-rent scheme, whereby Northwood becomes the tenant and then sub-lets the property. In return, the landlord receives a guaranteed annual rental income every month irrespective of voids or non-payment. Northwood also handles queries, complaints and maintenance, and makes its turn by paying rent below the open market rate. The stress-free attractions appear to have been well received, and over two-thirds of the 17,200 properties under management use the guaranteed-rent scheme.

While integration will doubtless present challenges, some reassurance can be taken from the progress Belvoir has made following last year's acquisition of sales-focused Newton Fallowell with 31 outlets and Goodchilds with 14. Belvoir sets great store by the way it helps to develop new franchisees, and provides training programmes including how to source suitable premises, while an in-house compliance team ensures that each office remains up to speed with current legislation.