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OnTheMarket Plc

OnTheMarket Property Portal 3.1 – Zeus Capital

OnTheMarket Plc (LON:OTM) is the largest majority-agent owned UK Property Portal. In its previous form Agents’ Mutual, its agents with Board membership included SpicerHaart, Savills, Knight Frank, KFH, Strutt & Parker and Chestertons. OTM recognises that Agents’ listings provide the content for Portals to monetise, and Agents are the main source of Portal income.

In recent years Agents’ shareholdings in the two large Portals, Rightmove and Zoopla, have fallen, while their prices have risen sharply. Duopolistic* pricing and reduced agent ownership within the two leading portals create the conditions for the next stage of OTM’s growth.

OTM offers agents competitive prices with benefits of “mutual” ownership supported by external capital to fund marketing and growth plans. This includes use of 36.4m shares to attract agents with over 5,000 offices.

The UK Estate Agency market is highly fragmented: many are single office businesses. OTM has 8,500 listing offices (31 May 2018), which is over a third of the market. This provides a sound base on which to build a “whole of market” UK Property Portal with wide agent ownership.

Competition in the UK Property Portal market before Agents’ Mutual’s entry was limited, as evidenced by the Competition Appeal Tribunal decision (viz OTM v Gascoigne Halman). The time is right for increased competition.

Management has “substantial new plans” to develop OTM. The combination of a large number of key agents as shareholders, fair pricing, and an increase in marketing spend is fuelling network effects and enabling OTM to compete on equal or better terms, in respect of price and efficacy.

Agents have a “vested interest” in OTM’s long-term success. Agents can continue to support the portal’s development.

OnTheMarket Plc’s executive team combines deep knowledge of the UK Estate Agency industry and UK Property Portals with financial discipline.

Equity value/office. In our opinion equity market value per office is a useful indicator. At 160p a share OTM has circa 44% market share and is trading on an equity market cap of £98m, which is £11.5k/office. The allocation of 36m shares to agents controlling over 5,000 offices would increase OTM’s market share to over 60% at a cost/office of £11.5k. By 2020-21, with the portal delivering an EBIT margin of over 30%, we would expect OTM to trade on over £20k/office, which would be consistent with a fully diluted share price of over 330p a share.