What’s new: OnTheMarket plc (LON:OTMP) is extending its “COVID-discount” which was due to expire on 25 July for a further 2 months to 25 September 2020.
- The discount will remain at 33% for the first month and will be 20% for the second month. These discounts will be given to all OnTheMarket agent customers who are paying on full-tariff listing agreements.
- While revenues will be impacted in the short term, the Group will continue to conserve cash through the careful management of costs.
In the past 2 weeks and since the partial relaxation of COVID-19 restrictions, OnTheMarket has seen new records for total leads delivered to advertisers:
- Over 430,000 leads were delivered in the week commencing 8 June 2020 and over 440,000 in the week commencing 15 June 2020.
- Visits were c.6 million in each week, an increase of over 280% on the weekly low point during lockdown and over 20% up on the first week in March 2020, before the impact of the lockdown on the property market.
- This has been achieved despite a significant reduction in marketing spend since the lockdown commenced on 23 March 2020.
Clive Beattie, CEO, commented: “It remains the core strategy of OnTheMarket, as the majority agent-owned portal, to deliver value and to provide first-class support for our agent customers. … The extended discounts allow [OnTheMarket] to support customers alongside a gradual increase in these activities whilst conserving cash.”
Zeus Capital view: The decision to support customers in difficult markets is sensible.
We estimate the extension to the COVID discounts will reduce 2H revenue by up to £1m: we reduce FY21E revenue by 4.3% to £22m (previously £23m).
We make no changes to forecast EBITDA (as management continue to conserve cash) and we reduce our forecast marketing spend by 11% to £8m.
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 2.7x historic and current year price/revenue. Stocks on price/revenue of 3.0x, with 25% operating margin, trade on PER of 15x.