OnTheMarket plc (LON:OTMP) maiden full year results to 31 January 2019 reveal it has built a Property Portal which is a highly effective competitor, delivering lower-cost leads to Agents than both Rightmove and Zoopla. Highlights include:
- Cash at year end of £15.7m (which is 12.1% above Zeus forecast of £14.0m) and at end May 2019 was £10.2m;
- Revenue rose 4.6% to £14.2m (which was 2.1% below Zeus estimate of £14.6m) with most new agents on “first year free” deals; recently agents with circa 1,000 offices converted to full tariff contracts on circa £337 ARPA/month.
- Administration costs (ex marketing) rose over 80% to £12.9m (which is 2.3% below Zeus estimate of £13.2m);
- Marketing cost £14.9m, which was 6.9% below Zeus estimate of £16.0m, helped increase prompted brand awareness for active property seekers from 27% in Spring 2018 to 47% in May 2019;
Current trading is encouraging.
- Growing consumer traffic & engagement (e.g. via Facebook);
- Growing leads to agents & improving value for money;
- New products which support agent’s operations (e.g. featured property, banner adverts, lead generating products)
- Nearly 1,000 “first year free” contracts converted to full tariff contracts
In summary “with revenues broadly covering operational costs before marketing expenditure and growing, a cash balance at 31 may of £10.2m and the continued support of agents, [OTM is] well placed to deliver long-term value to shareholders.”
Zeus view: These results show OTM has built a property portal which has reached critical mass in terms of customer and agent engagement, at lower than expected cash cost.
We adjust our forecasts to reflect higher than expected cash balance, the lower than forecast marketing costs and the average ARPA for agents converting is £337/month. Overall, we have reduced future revenues to reflect lower growth in offices (focus on conversion) and leave our cash outflow for FY20E unchanged.
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, OTM should trade on over £10k per advertiser (i.e. over £125m).
