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After a Brexit bashing, LSL banks on lettings and services

Both businesses are likely to be more resilient in the face of a possible downturn in the housing market
August 2, 2016

A robust first-half performance from LSL Property Services (LSL) was rather overshadowed by a warning from the estate and lettings agency that full-year operating profits would be significantly lower than previously expected.

IC TIP: Hold at 245p

Such an outcome is the inevitable consequence of shrivelling consumer confidence around the EU referendum meaning fewer transactions. While LSL has a reasonably diverse revenue stream, transactional volume is not expected to show any meaningful improvement in the second half.

Residential sales income in the first quarter was boosted by the rush to beat the imposition of higher stamp duty, but volumes fell in the second quarter to leave revenue ahead by just 1 per cent for the six-month period, at £42.5m. However, the lettings business proved to be more resilient, delivering organic growth of 5 per cent, which jumps by 11 per cent to £34m when including nine lettings books acquired during the first half. Financial services revenue, which includes mortgage advisory services, grew by 29 per cent to £29.5m.

Numis is forecasting pre-tax profits for the year to December 2016 of £31m and EPS of 24.2p (from £40m and 31.5p in 2015).

LSL PROPERTY SERVICES (LSL)
ORD PRICE:245pMARKET VALUE:£251m
TOUCH:240-245p12-MONTH HIGH:380pLOW: 195p
DIVIDEND YIELD:5.1%PE RATIO:8
NET ASSET VALUE:106p*NET DEBT:57%

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20151406.24.74
20161518.46.34
% change+8+35+34-

Ex-div: 11 Aug

Payment: 6 Sep

*Includes intangible assets of £186m, or 181p a share