OnTheMarket “we expect revenues to grow strongly in 2021/22” says Zeus Capital

OnTheMarket plc (LON:OTMP) announces that following “continued operational progress and strong consumer engagement, the Company now expects to deliver revenues and adjusted operating profit above market expectations for the current financial year to 31 January 2021”. Specifically:

  • Revenues no less than £22.5m (1H: £10.2m: 2He, £12.3m);
  • Adjusted operating profit no less than £1.5m (1H: £0.8m; 2He: £0.7m);
  • £10.9m of net cash on 30 November (30 Sept 20: £10.3m net cash), excluding deferred creditors which fell from £2.0m to £0.4m, cash increase was effectively £2.2m;
  • Marketing expenditure, to support consumer engagement and lead generation for advertisers, will be higher in December and January than in October and November. As such, the cash balance is likely to reduce slightly to 31 January 2021 but remain strong, with sufficient scope to invest in the business.

Guidance: “in light of the ongoing uncertainty and as a prudent measure until greater clarity exists, the Company is not providing financial guidance beyond the current financial year. With a strong cash position, the Company is planning to increase investment in the business in the coming year, particularly in new products and services, people and marketing expenditure … to take advantage of the significant growth opportunities”.

Zeus view: we raise our revenue forecast 2.3% from £22.0m to £22.5m (i.e. £25.1m pre-Covid-discounts): 20% headline growth (33% gross of discounts).

We raise our forecast adj PBT from breakeven to £1.5m profit. We cut forecast overheads £0.7m to £14.4m and marketing costs by £0.3m to £6.6m.

We raise our forecast net cash at year end from £8.0m to £9.5m.

With no guidance for 2022, but a clear statement of intent to increase investment in new products and services, people and marketing, we expect revenues to grow strongly in 2021/22 and profits to emerge in later years.

Valuation: OTMP with £10m (13p per share) of net cash, a capital light business model, long-term contracted revenues and ability to manage costs to conserve cash, in our opinion, its equity value should be seen as a multiple of revenues.

OnTheMarket, at 122.5p, is trading on 3.8x current year revenue (excluding Covid-discounts) of 32.1p a share; allowing for net cash the price/revenue multiple falls to 3.4x, which is low given the potential to grow revenues with high drop-through-margins from existing clients, develop New Homes revenues, and the positive impact of Jason Tebb’s appointment as new CEO.

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