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Zeus Capital

OnTheMarket Update provides new guidance

What’s new:  OnTheMarket provides a trading update and guidance prior to releasing its interims on 10 October. Highlights are:

  • Cash is currently £8.5m (31 May 2019: £10.2m; 31 January 2019: £15.7m);
  • Progress converting free-of-charge trial agents to paying contracts with over 2,000 signed on an average ARPA of £297/month and 46% on long-term contracts of 3 or 5 years with shares;
  • Launch of new home developers with Barratt Developments plc already contracted on a portal listing and additional products advertising agreement;
  • Agent offices remain over 12,500 and UK residential listings are now approximately 86% of Zoopla’s and 65% of Rightmove’s listings;
  • Record levels of value delivered to advertisers with visitsin September expected to exceed the 25.4m achieved in May 2019;
  • Group revenues exceeds ongoing operating costs before marketing.

The statement provides guidance for the financial years ending 31 January:

  • FY20 revenue in the range £18.0m to £18.5m (i.e. growth of 27% to 31%) with an adj EBITDA loss of £9m to £10m;
  • FY21 revenue in the range £27m to £29m, achieving “a broadly breakeven adjusted EBITDA” (we forecast a £2m adj PBT loss);
  • FY22 revenue growth result[ing] in significant profitability and cash generation.

Outlook: The statement says, “Difficult property markets] have given rise to a much more challenging backdrop against which to convert agents onto full-tariff paying contracts.…. The Group has, therefore, introduced shorter term, lower cost contracts, … The availability of this alternative has raised the current rate at which agent offices are signing paying contracts to record daily levels.”

Zeus view: We take note of management’s guidance and adjust our forecasts appropriately (see Exhibits 1 & 3, 4, 5, 6 & 7). As group revenue is on multi-year contracts and management maintains strong control over costs, we expect “cash burn” which was c £7.2m in the first 8 months of the reporting period to be £11.0m leaving £4.7m of cash at year end 31 January 2020. 

Valuation: The equity value of a UK property portal, which arguably beats its peers in terms of leads generated and marketing yield, can be measured in terms of price to revenue or value per office or advertiser. In our view, after break even, OnTheMarket should trade on over £10k per advertiser (i.e. over £125m).

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