What’s new: OnTheMarket (LON:OTMP) has announced strategic investment for a 20% share in Glanty Ltd, the owner and developer of ‘teclet’, an automated portal for the lettings industry, designed to reduce overheads and maximise efficiencies for lettings agents. OnTheMarket has also agreed a Call Option to acquire the remaining 80% of Glanty Ltd.
OTMP is raising £3.0m net of costs through a placing to fund the cash element of the 20% stake, the cash element of the Call Option exercise and transaction costs.
The cost of the Call Option is £1.4m cash for the repayment of loans and £1.5m (settled in shares or cash at OTMP option), plus a 3-year deferred earnout (capped at £12m, which will be settled in shares or cash at OTMP option based on 1x year 3 recurring revenue and 1.5x year 3 recurring EBITDA).
The company’s website: teclet.com explains how it helps lettings agents to:
- generate additional revenues with partner products (e.g. referencing, utility switching, inventories, insurances, maintenance, payments) which could exceed the cost of the platform (£199 per branch per month subject to terms);
- reduce admin input by up to 80%;
- improve customer service, as the platform operates 24/7
The founders of teclet, a landlord and agency owner, have built the platform over the last three years at a cost of £4m. Currently its clients include Spicerhaart, Hunters, Belvoir, Chestertons, and others. OTMP management intends to deliver teclet product via its existing agent portal (expert.OnTheMarket) to its members, the majority of which are smaller firms.
Zeus Capital view: we now expect OnTheMarket to have substantial net cash of £8m on 31 January 2020, to be on track to reach breakeven after Easter 2020 and deliver an attractive EBITDA margin as it builds its network and adds additional product.
Our forecasts assume OTMP starts building “other revenue”: teclet provides potential for the group to develop additional products.
Valuation: UK’s leading property portal, which has an operating margin of over 75%, trades on 19x revenue and 30x earnings.
Our analysis, set out in Exhibit 9 on page 6, suggests OTMP with a more sustainable pricing strategy and with the opportunity to deliver additional product with high incremental operating margins, should trade on over 5x revenue.
At 73.5p OTMP is trading on 3.1x current year revenue and 2.3x prospective.
