LSL hit by housing market turmoil

It is apparent that 2022 wasn’t a good year for LSL Property Services (LSL). The group was shaken by Liz Truss’ ‘mini’ Budget in September, which wreaked havoc on the mortgage market, and also faced a wider housing slowdown, hot off the heels of the pandemic property boom. 

LSL’s full-year figures reflect the tumultuous conditions. The group reported an operating loss of £56.7mn in the year to 31 December 2022, which included a £87.2mn impairment charge for goodwill. Management said this non-cash item reflected the impact of “more conservative mid-term housing market assumptions, higher discount rates and the disposal of non-core businesses”.

These disposals are important: LSL is trying to streamline its business and reduce its exposure to housing market cycles. This involves focusing more on financial services to do with mortgages and insurance, and less on its estate agents. (LSL sold London chain Marsh & Parsons to a rival in January 2023). 

The strategy makes sense, but the company still has a long way to go. In 2022, its estate agency division generated 46 per cent of revenue, while financial services accounted for just 25 per cent. 

The distribution of work caused problems for the group as whole: estate agency revenue fell by 5 per cent year-on-year, fuelled by a decline in residential sales, and the division reported an operating loss of £61.8mn. This reflected the goodwill impairment, as well as high energy costs and a lack of business rates relief. 

LSL expects market conditions to remain “challenging” in the first half of 2023, but thinks they will improve in the second half, supported by a strong re-mortgage market and growing consumer confidence. For now, however, we remain cautious about the state of the market and the cost of internal restructuring. Sell. 

Last IC View: Sell, 196p, 30 July 2019