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OnTheMarket Plc

OnTheMarket Plc Long-term agreement signed

What’s new: This morning OnTheMarket Plc (LON:OTMP) announced that a leading South of England full-service agent, Andrews Property Group, has signed a long-term agreement with OTM to advertise its UK residential sales and lettings.

Under the long-term agreement, Andrews Property Group (like other agents contracted to OTM), will promote OnTheMarket.com portal brand and undertake branch-based marketing.

Last week OTM announced that in the 8 months since IPO in February this year, it had doubled the size of its business. It now has listing agreements with estate agents with more than 11,000 agent branches (February 2018: 5,500 agent branches). The announcement also revealed that:

“the traffic to the portal reached a record high of 17.4 million visits during September 2018. This is more than three times the number of visits compared with February 2018. [In addition] in September 2018, the portal delivered record levels of phone and email leads to its estate and letting agent customers. The total figure was more than 4 times those delivered in February 2018.”

Zeus view: The signing of a long-term contract with Andrews Property Group, a leading mid-sized estate agent is encouraging. We estimate that over 85% of “mid-sized estate agency groups” (i.e. those with 13-84 branches) advertise UK residential sales and lettings on OTM. We expect further long-term contracts to be signed over the coming months.

With over 11,000 agent branches using OTM, we estimate that its overall market share is over 60%.

It is clear that “network effects” are increasingly benefiting Estate Agents on OTM. With double the number of agent branches listing on OTM, the stock of properties listed on OTM has doubled. Double the number of listings will have helped increase the number of visits 3-fold and the number of leads to OTM estate agents 4-fold.

Significantly increased marketing spend by OTM will have also helped the “network effects”.

We make no changes to our forecasts, which are set out overleaf (Exhibit 1).

Equity value/office: In our opinion, equity market value per office (i.e. agent branch) is a useful indicator of value. At 146p a share OTM has circa 60% market share and is trading on an equity market cap of £90m, which is £8.2k/office.

In our previous research we observed that “by 2020-21, with the portal delivering an EBIT margin of over 30%, we would expect Onthemarket to trade on over £20k/office, which would be consistent with a fully diluted share price of over 330p a share”.

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