OnTheMarket scale & breakeven achieved says Zeus Capital

Property Services

What’s new:  OnTheMarket plc (LON:OTMP), 65% agent-owned and has almost 40% of independent UK estate and letting agents as shareholders, has released its January 2020 results revealing:

+      32% rise in average branches listed to 12,497 (over 8,000 paying at year end; over 9,000 paying on 31 May 2020);

+    12% rise in advertisers during FY20 to 13,364 (31 May 2020: 13,605);

+    49% rise in mobile site traffic or portal visits to 237m;

+    75% rise in average monthly leads per advertiser to 96.

+      32% rise in revenues to £18.8m (Zeus forecast: £18.5m).

+      £4.6m improvement in adj EBITDA (Zeus forecast £2.6m improvement).

+      £4.4m improvement in adj operating loss to £9.2m (Zeus estimate: £11.0m),

+      with marketing spend of £12.0m (Zeus estimate: £12.0m) and

+      with overheads of £16.0m (Zeus estimate: £17.5m).

+      EPS of -18.0p loss (n.b. adj EPS of -14.1p loss vs Zeus estimate: -14.5p loss).

+      £8.7m cash on 31 Jan 2020, as previously announced (31 May 2020: £8.8m).

Clive Beattie, CEO, said OTM has “increased our paying agent base, broadened our customer markets [e.g. new homes developers] and achieved significant growth in [visits] and leads.” He looks forward “with confidence and a differentiated proposition … highly valued by agents looking for sustainably fair pricing.”

Zeus view: These results show OTM, post January 2020 year end, reached “cash break even“, with net cash rising £0.1m to £8.8m. Allowing for investment in Glanty, we leave forecast net cash for 31 January 2021, unchanged at £7.9m.

Revenue grew strongly (1H19: £7.0m; 2H19: £7.2m; 1H20: £8.0m; 2H20: £10.8m). COVID discounts will erode 1H21E revenue by c£2m to £10m and recover in 2H21E to £13m. We cut our FY21E revenue 11.5% to £23m, cut marketing costs 10% to £9m and set overheads at £15m (6% below FY20 actual cost: £16m).

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 historic 2.1x historic price/revenue falling to1.8x for FY(Jan)21E. Stocks on price/revenue of 2x, with 20% operating margin, trade on PER of 11x.

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Zeus Capital Ltd.

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