Main menu
Edison Group
  • Home
  • Equities

    Equities

    View All Equities

    Equities by Sector

    Dar Global

    MCap

    USD1,486m

    Last close

    USD8.25

    ▲ −0.25 (−2.94%)

    Theon International

    MCap

    EUR875m

    Last close

    EUR12.50

    ▲ 1.44 (13.02%)

    Metals One

    MCap

    GBP2m

    Last close

    GBP0.00

    ▲ 0.04 (8.89%)

  • Sectors

    Sectors

  • Thematics

    Thematics

    View All Thematics

    Latest

  • Audiovisual

    Audiovisual

    View All Audiovisual

    Latest

OnTheMarket — Networking

OnTheMarket — Networking

OnTheMarket (OTM) continues to make good progress in building its market share and improving its brand recognition both with agents and the public. The group now has over 11,000 agency branches under listing contracts – a 58% share of the total. This increased reach is driving higher levels of traffic to the portal and delivering good leads to agents. The challenge now is to convert these agents to paying clients and grow the proportion holding OTM shares. We continue to model the group moving into profit and becoming cash-flow positive in FY21. On an EV/revenue basis, backed by DCF modelling, the shares have good potential upside.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

OnTheMarket

Networking

Interim results

Media

11 October 2018

Price

137.5p

Market cap

£84m

Net cash (£m) at end July 2018

24.3

Shares in issue

61.3m

Free float

41%

Code

OTMP

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(7.4)

(12.9)

N/A

Rel (local)

(6.4)

(7.5)

N/A

52-week high/low

181.0p

107.5p

Business description

OnTheMarket is an estate agent-backed company that operates a synonymous property portal. It is the third-largest UK residential property portal provider in terms of traffic.

Next events

Full year results

April 2019e

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Neil Shah

+44 (0)20 3077 5715

OnTheMarket is a research client of Edison Investment Research Limited

OnTheMarket (OTM) continues to make good progress in building its market share and improving its brand recognition both with agents and the public. The group now has over 11,000 agency branches under listing contracts – a 58% share of the total. This increased reach is driving higher levels of traffic to the portal and delivering good leads to agents. The challenge now is to convert these agents to paying clients and grow the proportion holding OTM shares. We continue to model the group moving into profit and becoming cash-flow positive in FY21. On an EV/revenue basis, backed by DCF modelling, the shares have good potential upside.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

01/17

15.6

1.0

(1.4)

0.0

N/A

N/A

01/18

13.5

2.7

7.4

0.0

18.6

N/A

01/19e

15.0

(16.0)

(27.4)

0.0

N/A

N/A

01/20e

32.0

(9.4)

(12.5)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Financials on track

Revenue for the six months to July was 2% up year-on-year, with the operating loss of £5.7m reflecting the heavier investment in marketing, as expected. The changes to our forecasts are primarily on the back of the adoption of IFRS15, which takes £3m off our revenue figures for both FY19e and FY20e, matched by a similar sum coming off the administrative costs (FY17 and FY18 are also adjusted). We have also taken a further £0.8m off our anticipated marketing costs for the current year in view of the success of the campaign to date. OTM had cash of £24.3m (no debt) at the half year and our modelling suggests net cash of £10.3m at the year-end, with £1.7m at end FY20, after which we expect the group to move into profit.

Focus shifting to driving commercial revenue

The first phase of the strategy has been agent recruitment and this has gone well, as shown by the branch numbers. With the prices charged by more established portals still moving ahead and the fundamentals of the agency market challenged on a number of fronts (falling commissions, tenant fee bans, Brexit uncertainty etc), OTM’s proposition has been attractive. The emphasis now shifts to building deeper engagement with the agencies ahead of end of the free-listings periods.

Valuation: Overstating execution risk

The shares are trading at 4.1x forecast EV/revenue to January 2019, compared with Rightmove at 16.2x (8.1x average for a broader global peer set of property portal businesses). We have also modelled the DCF, based on a WACC of 10.2%. This derives a value of 332p per share (was 355p) but, given the potential variability of outcomes, we would suggest an execution risk discount of 30% would be appropriate, indicating a price of 232p.

Cementing the attractions

The current financial results are not the crux of the investment case, beyond the rate of cash absorption. The slight dial-down of the anticipated marketing spend (after the earlier spend achieved greater impact than anticipated) means the group should have comfortably enough cash resource to see it through to profitability, based on our current assumptions.

The key divergence from the plan as set out at the time of the IPO (and described in our initiation note) has been that more agencies and agency groups have opted for the discounted/free listing model, rather than for the equity option, which was designed to attract key agents into long-term contracts, allowing them to share directly in the benefit of the group’s success. The short-term objective must therefore be to convince those agents of the efficacy of continuing listing on the OTM portal sufficiently that they convert at the end of their trial periods, preferably to shareholders with an ongoing vested interest.

Building profile

A key objective has been to build sufficient market share to raise the group’s profile. OTM has achieved particularly strong penetration in the mid-sized regional agents (a 96% share in agents with between 13–19 offices, for example; 84% current share of properties listed in Herefordshire). This in turn drives traffic to the website, as has the marketing campaign. This was initially focused on digital/SEO, then supplemented with TV and out of home in London in early summer and again in September. Web traffic in September was 17.4m visits, up from 11.9m in March.

Commercial advantage

While price is inevitably a crucial part of the equation, value is increasingly relevant in a market-facing external economic, regulatory and commercial pressures. Hence OTM’s marketing proposition is putting more emphasis on its ‘new and exclusive’ listings, which gives agents a higher-traction route to market (and which featured in the September marketing campaign). The current average revenue per agency (ARPA) of £153 is a reflection of the mix with agencies on free/discounted deals, and is further diluted by the IFRS 15 adjustment to £132. This compares with Rightmove’s latest published agency ARPA, up £75 year on year at £940, with rises reflecting additional advertising products as well as price increases to over half of its customers. Its number of agency branches was broadly unchanged, at 17,585, compared with OTM’s 11,210 by end-September 2018. Visibility on ZPG’s metrics will likely decrease now it has gone into private equity ownership, but its H118 property average revenue per property partner was £484, up over 6% like-for-like, year-on-year (NB: this figure includes non-comparable revenues).

Exhibit 1: Financial summary

£'k

2017

2018

2019e

2020e

31-January

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

15,631

13,546

15,000

32,000

EBITDA

 

 

3,292

5,353

(14,423)

(7,808)

Operating Profit (before amort. and except.)

 

2,324

3,886

(16,200)

(9,723)

Amortisation of acquired intangibles

0

0

0

0

Exceptionals

(3,506)

(1,436)

(2,900)

0

Share-based payments

0

(13,290)

(400)

0

Reported operating profit

(1,182)

(10,840)

(19,500)

(9,723)

Net Interest

(1,351)

(1,231)

201

298

Joint ventures & associates (post tax)

0

0

0

0

Exceptionals

0

0

0

0

Profit Before Tax (norm)

 

 

973

2,655

(16,000)

(9,425)

Profit Before Tax (reported)

 

 

(2,533)

(12,071)

(19,300)

(9,425)

Reported tax

(1,486)

(22)

(605)

1,885

Profit After Tax (norm)

(513)

2,633

(16,605)

(7,540)

Profit After Tax (reported)

(4,019)

(12,093)

(19,905)

(7,540)

Minority interests

0

0

0

0

Discontinued operations

0

0

0

0

Net income (normalised)

(513)

2,633

(16,605)

(7,540)

Net income (reported)

(4,019)

(12,093)

(19,905)

(7,540)

Average Number of Shares Outstanding (m)

36

36

61

61

EPS - normalised (p)

 

 

(1.4)

7.4

(27.4)

(12.5)

EPS - normalised fully diluted (p)

 

 

(1.4)

7.4

(27.4)

(12.5)

EPS - basic reported (p)

 

 

(11.3)

(34.0)

(32.9)

(12.5)

Dividend per share (p)

0.0

0.0

0.0

0.0

Revenue growth (%)

-

85.7

109.7

212.3

EBITDA Margin (%)

21.1

39.5

-96.2

-24.4

Normalised Operating Margin

14.9

28.7

-108.0

-30.4

BALANCE SHEET

Fixed Assets

 

 

3,601

3,672

3,895

4,300

Intangible Assets

3,556

3,654

3,887

4,023

Tangible Assets

45

18

8

277

Investments & other

0

0

0

0

Current Assets

 

 

5,972

3,704

24,037

8,532

Stocks

0

0

0

0

Debtors

3,709

530

1,198

3,532

Cash & cash equivalents

2,263

3,174

22,839

5,000

Other

0

0

0

0

Current Liabilities

 

 

(7,316)

(5,454)

(4,891)

(6,516)

Creditors

(5,937)

(4,215)

(3,674)

(5,299)

Tax and social security

0

0

0

0

Short term borrowings

(1,379)

(1,217)

(1,217)

(1,217)

Other

0

(22)

0

0

Long Term Liabilities

 

 

(11,256)

(11,610)

(11,256)

(2,044)

Long term borrowings

(11,256)

(11,256)

(11,256)

(2,044)

Other long term liabilities

0

(354)

0

0

Net Assets

 

 

(8,999)

(9,688)

11,786

4,273

Minority interests

0

0

0

0

Shareholders' equity

 

 

(8,999)

(9,688)

11,786

4,273

CASH FLOW

Op Cash Flow before WC and tax

2,896

5,353

(14,423)

(7,808)

Working capital

(42)

415

(1,208)

(682)

Exceptional & other

(3,506)

(1,436)

(2,900)

0

Tax

(1,486)

(22)

(605)

1,885

Net operating cash flow

 

 

(2,138)

4,310

(19,137)

(6,605)

Capex

(1,623)

(1,538)

(2,000)

(2,320)

Acquisitions/disposals

0

0

0

0

Net interest

(937)

(1,393)

(1,099)

298

Equity financing

0

0

42,255

0

Dividends

0

0

0

0

Other

1,516

0

0

0

Net Cash Flow

(3,182)

1,379

20,019

(8,627)

Opening net (cash)/debt

 

 

6,747

10,372

9,299

(10,330)

FX

(30)

0

0

0

Other non-cash movements

(413)

(307)

(390)

0

Closing net (cash)/debt

 

 

10,372

9,299

(10,330)

(1,703)

Source: Company accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by OnTheMarket and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: TMT

MIC — Good for now

H118 results suggest continued progress in mic’s ‘remarkable change of course’ although, in the absence of management commentary/guidance, underlying performance and immediate financial prospects are necessarily hard to judge. Gross profit was c 20% ahead of H217, while EBT was broadly maintained year-on-year after adjusting for one-off restructuring gains, which flattered the comparative. Significantly, there was also further marked reduction in liabilities (€0.5m vs €0.8m at December 2017) thanks to efficiencies. Restructuring was last reported in July to be largely completed, with management confident that its portfolio focus on three business areas with good potential is ‘very much on track’.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free