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OnTheMarket agents “welcome” new contract says Zeus Capital

What’s new: Since 27 April 2020, when OnTheMarket plc (LON:OTMP) started offering new “welcome contracts” almost 500 estate agent branches have signed up, with each business owner receiving welcome shares and over 60% either listing exclusively with OnTheMarket or on a “one other portal basis“.

  • The new ”welcome contracts“ issue either £1,000 of welcome shares per office with flexible portal choices, or £2,500 of welcome shares per office if an agent commits to list exclusively for a minimum of 12 months.
  • Under both contracts, listing is free until 1 September 2020 and agents receive additional shares that equate to a percentage of the amount that they pay up until 31 August 2022. This percentage is 50% for periods of listing exclusively with OnTheMarket, 30% for periods of listing on only one of Rightmove or Zoopla/Primelocation and 20% for periods of listing on both Rightmove and Zoopla/Primelocation.
  • Agents also receive discounts on their listing fees depending on whether they list on Rightmove and/or Zoopla as well as OnTheMarket.

OnTheMarket continues to set new records leads for its advertisers, delivering 1.8m leads in June. This is an average of 134 leads per advertiser (compare: average of 94 leads per advertiser last year; 126 leads per advertiser for January).

Clive Beattie, CEO, commented: “With agents owning c.65% of OnTheMarket … our interests are directly aligned. … This latest group are joining the thousands of existing estate and letting agents who are collectively the portal’s largest shareholder.

“The record month for leads, achieved despite a substantial reduction in advertising since the beginning of the COVID-19 lockdown, highlights the increasing value we are delivering to agents for their listing fees.”

Zeus view: The take up of Welcome contracts is encouraging. For FY(Jan)21, we expect OnTheMarket to operate at EBITDA breakeven, as it provides its advertisers discounts and much needed leads.

When discounts unwind in 2021/2, we estimate OTM revenue may exceed £32m.

Valuation: OnTheMarket has substantial net cash of over £8m, a capital light business model, long-term contracted revenues and an ability to manage its costs to conserve cash. OTM is now operating at breakeven in the current year and is growing its paying advertisers. As paying advertisers rise and discounts fall away, contracted revenues will rise and in 2021 calendar year OTM should report profits. OTM is trading on 2.7x historic and 2.8x current year price/revenue. Stocks on price/revenue of 3.0x, with 25% operating margin, trade on PER of 15x.

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