Estate agents have been facing considerable headwinds for a couple of years, as transactional volumes in traditional house buying and selling have declined. With falling commission and a relatively fixed cost base, that’s bad news for margins and profits.
Very attractive dividend
Strong cash flow
Diversified revenue stream
22 years of consecutive growth
Shares are thinly traded
Risk of decline in sales
However, the lettings side has been much more resilient, which is good news for Belvoir Lettings (BLV), which generates 71 per cent of its revenue from lettings, 18 per cent from sales and 11 per cent from a fast-growing financial services division. The business model centres on signing up letting agencies as franchisees, and providing them with back-office systems and other support in exchange for a fee, known as management service fee (MSF) income. It even provides an assisted acquisitions strategy, lending franchisees funds to acquire other agencies. A total of 26 were completed in 2018, bringing in an additional £6.9m of network revenue.
Properties under management grew by 8 per cent in 2018 to 62,780, while MSF per office also grew by 8 per cent to £28,333. And there is plenty of scope to improve this still further, not least because Belvoir estimates that legislation will drive around 20 per cent of all letting agents out of the market. Belvoir itself is less exposed to new rules, however. The introduction of compulsory client money protection has been a requirement of its franchisees for many years, and the group is well prepared for the tenant fee ban that comes into force on 1 June. And despite the depressed sales market, Belvoir managed to increase its fee income from sales by 8.4 per cent.
| BELVOIR LETTINGS (BLV) | ||||
| ORD PRICE: | 102.5p | MARKET VALUE: | £36m | |
| TOUCH: | 100-105p | 12-MONTH HIGH: | 110p | LOW: 88p |
| FORWARD DIVIDEND YIELD: | 7.4% | FORWARD PE RATIO: | 7 | |
| NET ASSET VALUE: | 62p | NET DEBT: | 44% | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2016 | 9.9 | 3.1 | 7.4 | 6.8 |
| 2017 | 11.3 | 4.9 | 10.7 | 6.9 |
| 2018 | 13.7 | 5.5 | 11.7 | 7.2 |
| 2019* | 19.0 | 5.7 | 12.5 | 7.4 |
| 2020* | 20.8 | 6.5 | 14.3 | 7.6 |
| % change | +9 | +14 | +14 | +3 |
| NMS: | 1,000 | |||
| BETA: | 0.39 | |||
| *Cantor Fitzgerald forecasts, adjusted PTP and EPS figures | ||||
Belvoir is also increasing its financial services capability with the acquisition of Brook and MAB Glos, which has taken the number of financial service advisers – who essentially provide mortgage advice and other property-related financial services – from 29 to 123, which includes 87 from the MAB Glos acquisition. This side of the business now generates over a tenth of gross profits. The acquisitions pushed net debt up from £5.1m to £9.6m, but with an operating cash conversion rate of 105 per cent, debt is expected to contract. In addition, costs have been tightly controlled while revenue has risen, giving an adjusted cash profit margin of 40 per cent. There is plenty of regional diversification as well, and just 7 per cent of its offices are in London.
So it’s clear that Belvoir is getting it right because profits for 2018 marked the 22nd consecutive year of growth. And dividend cover has been steadily improved to 1.8 times post-tax earnings, while the historic dividend yield stands at an attractive 7 per cent.
