OnTheMarket “revenue may exceed £32m” says Zeus Capital

What’s new: OnTheMarket plc (LON:OTMP) Chairman, Christopher Bell, is expected to make the following observations at the AGM later today:

  • OnTheMarket had £9.4m net cash at end June 2020 (end May 2020: £8.8m).
  • Agents listing with OnTheMarket are seeing strong levels of activity … following the release of pent-up consumer demand as the market reopened, buoyed further by the Chancellor’s stamp duty holiday.
  • OnTheMarket delivered 1.8m leads in June. This is an average of 134 leads per advertiser (compare: average of 94 leads per advertiser last year; 126 leads per advertiser for January).
  • 1,619 agent branches list exclusively with OnTheMarket (up 42% yoy).
  • At 30 June 2020, OnTheMarket’s total advertisers* had reached almost 14,000. 

advertisers include new home developments, as well as estate and lettings agent branches

The Chairman will observe that “The COVID-19 is a catalyst for agents to review their portal choices and examine the value delivered“ OnTheMarket is competitive well positions with its “strong portal, agent-alignment-through-ownership and commitment to sustainably low listing fees“.

Zeus view: We are encouraged to see evidence of management’s cost control, with £0.6m of cash generated in June 2020. For FY(Jan)21, we expect OnTheMarket to operate at EBITDA breakeven, as management will increase sales and marketing spend later this year.

As previously observed: “when discounts unwind in 2021/2, we estimate OntheMarket revenue may exceed £32m.”

Valuation: OnTheMarket has c. £9.4m (13.2p per share) of net cash, a capital light business model, long-term contracted revenues and an ability to manage its costs to conserve cash. In the first 5 months of FY(Jan)21, OTM generated 1.0p of cash.

OnTheMarket is well positioned to grow organically, as its portal offering provides advertisers a ”higher marketing yield” than higher-priced-alternative-portals. The number of subscription paying advertisers contracted to OnTheMarket continues to grow. As paying advertisers rise and discounts fall away, contracted revenues will rise and in 2021 calendar year OTMP stock should report profits.

OTMP is trading on 2.9x historic and 3.0x current year price/revenue. Excluding net cash OTMP’s price/revenue multiples fall to 2.5x and 2.6x. Stocks on price/revenue of 3.0x, with 25% operating margin, trade on PER of 15x.

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