LSL Property Services “2021 was the most profitable year” says Zeus Capital

Full year results confirms 2021 was LSL Property Services plc (LON:LSL) most profitable year. Improved profitability in its Surveying division and strong drivers of growth in Financial Services suggest group profits should be maintained in 2022.

Financial performance in 2021:

  • 23% rise in Group revenue to £326.8m (as per January 2022 update)
  • 40% rise in underlying operating profit to £49.3m (Zeus forecast £50.0m; 2020 pre-covid costs: £41.5m; 2020 post-Covid costs: £31.2m)
  • 18% rise in adj EPS to 37.7p (Zeus forecast 37.8p)
  • 7.4p final DPS making full year DPS 11.4p (Zeus estimate 12p)
  • Net cash on 31 December 2021 of £48.5m (as per January 2022 update)

Operational performance

  • £14.8m profit from Financial Services profit (up 20%; net of £3m to “develop Financial Services technology and D2C business”), with rising adviser numbers and productivity driving FS Network profit up 34% to £14.4m
  • £23.6m Surveying profit (up 46%), as operating margin rose to 25.2% (2020: 21.0%), reflecting operational efficiency and improved income per job
  • £18.4m Estate Agency profit (up 53%) reflecting increasing market share in core catchment areas and overall housing market recovery

Outlook: “The benefits of [LSL’s] growth strategy in Financial Services and the significant investment in Surveying & Valuation, mean [LSL] expect the housing cycle to have a more limited impact of Group results” The 1H:h2 split of profit this year will revert to more typical profile: 33:67.

Zeus view: 2021 delivered a record EBIT of £49.3m. In 2022, LSL should benefit from continued growth in advisers using the group’s Financial Services Network, and from continued high utilisation of own surveyors. With property market transactions returning to pre-Covid levels, the estate agency division’s residential sales exchange income will fall, reducing that division’s revenue and profit. Overall we expect LSL group profit to rise marginally.

We trim our 2022E operating profit forecast 3.8% from £52m to £50m (page 2), our adj EPS by 3.8% to 37.8p and our DPS by 5.0% to 11.4p.

Valuation: These results provides evidence of growth in LSL’s Financial Services and Surveying division profits. They should lift LSL shares from the bottom of its 6 month trading range of 350p to the top of the range: 490p a share.

LSL Property Services share price of 350p is a 42% discount to our sum of the parts valuation of £640m or 609p a share based on peer’s 2022 PER multiples (see page 2 for our Sum of the Parts analysis), which values LSL Financial Services division at £292m or 278p a share and its Surveying division at £257m or 245p a share.

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