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The shares have been weak in the run-up to today’s announcement, falling 16% in a month. At the share price at the time of writing (267p) they trade on 16.3x CY24E earnings, falling to c.13x in FY25E. We are upgrading our TP from 250p to 285p, but retain our Hold rating.
LSL Property Services plc
The shares have been weak of late, falling 16% in the past month. At 238p, they trade on c.17x CY24E PE, though this falls to c.14x once today's upgrades are factored in. Following the franchising of the agency business, and with a more stable market backdrop, LSL now operates three high returning and sustainable platforms.
Whilst 2023 proved to be a highly challenging year for LSL, the performance in the first two months of the year shows that LSL has retained/built market share over the past few years, and it is highly operationally geared to the upturn in market conditions (particularly mortgage volumes). Following
The shares have risen 8% in the past three months. They currently trade on c.19x CY24E earnings and 10.3x EV/EBITDA, falling to 12.6x and 7.5x in CY25E. At 265p, they look up to events in our view.
Following a positive 4Q23, full year results for 2023 are in line with the Board’s expectations (ahead of Zeus forecasts).
While the backdrop is clearly unhelpful, LSL should be well positioned to capitalise on any market recovery. We increase our target price from 215p to 250p to reflect our view that FY23E marks the trough, but retain our Hold recommendation.
Whilst it is difficult to see from the H1 numbers, we think the strategic changes over the past 18 months will make LSL a less volatile/cyclical, higher margin and higher growth company. This is supported by a strong balance sheet, which will give the group optionality over shareholder returns and/
In the first half of 2023, LSL Property Services made major steps to create a high margin, high cash conversion, platform that will “perform more consistently through market cycles”. Interims restate observations made in its August update.
While the backdrop is clearly unhelpful, LSL should be well positioned to capitalise on any market recovery. The shares trade on c.19x CY24E earnings and 10.5x EV/EBITDA, with a 4% dividend yield. Hold, TP 215p.
The macro is clearly creating some challenges for LSL, as it is with others in the sector. However, the business still operates leading positions in industries central to the UK housing market and has a strong balance sheet.
The macro is clearly creating some challenges for LSL, as it is for others in the sector. However, the business still operates leading positions in industries central to the UK housing market, and has a strong balance sheet with net cash of >£40m.
In an unscheduled update, LSL has pointed to full-year results substantially below previous expectations — and we reduce FY23/24 PBT by 60/24%. This reflects that market conditions have deteriorated materially post the recent rate rises, which is impacting both the Surveying and Financial Services
LSL has released a pre-close update which reveals 1H operating profit was “broadly in line” but recent changes in mortgage approvals prompts management to lower guidance for the year
Meeting Notes - Jun 02 2023
LSL MTO DPH
LSL's move to franchise the entirety of its estate agency business will further simplify the group and reduce its cyclicality and cost base materially. Importantly, LSL retains the right to the long-term provision of financial services and other products to the network. We also think that greater o
LSL has recently announced the conversion of 183 estate agency branches to franchises: 143 agreed; 40 at advanced stage. Including the 120 franchise branches it currently operates, LSL will be one of the largest estate agency franchisors in the UK, with a network of over 300 branches. This simplifies LSL’s structure and financial model to a capital-lite, high margin service platform.
LSL's FY22 results were in line with Numis' expectations. We maintain underlying forecasts for FY23, although we adjust for c.£3m of lost profit from disposals made in FY22/23. Whilst FY23 forecasts point to a large yoy fall in profits, front end indicators are improving after the sharp slowdown wi
LSL continues to face a challenging macro backdrop, but the group’s pipelines are rebuilding across Surveying and Agency. Performance will naturally be weighted to 2H but the group remains well placed to continue to deliver on its strategy. We retain our Hold rating and 215p target price.
LSL continues to face a challenging macro backdrop, but the group’s pipelines are rebuilding across Surveying and Agency. Performance will naturally be weighted to 2H but the group remains well placed to continue to deliver on its strategy. We retain our Hold, with an unchanged TP.
LSL’s 2022 results meet guidance set last November and show increasing market share across its divisions. This year, in a slow market, LSL simplified its structure: selling its D2C brokerages to its JV Pivotal Growth and its London Agent, Marsh & Parsons, to Dexters. With £40m of net cash and substantial proceeds from disposals, we expect LSL to focus on building out its Financial Service Network
LSL is operating in a tough market, with considerable uncertainty. The significant cuts to numbers and macro backdrop mean we downgrade to Hold. However, this should not overshadow the fact that the FS and Surveying business continue to grow nicely, and a change in sentiment could drive a swift re-rating.
LSL's update points to a marked slowdown in front-end activity since the mini-budget, impacting newly agreed sales, mortgage applications and valuation instructions in Surveying. This is expected to result in FY22 EBIT just below 2019 (-15% versus previous forecasts), but based on the expectation t
We expect to make sizeable cuts to our forecasts post the update, but to some extent these have already been reflected in the share price, which has fallen 24% in the past three months.
LSL’s trading update shows its diversification strategy is working: increased market share and good growth in Financial Services and Surveying for the first 10 months, however the last 2 months of 2023 have been disrupted by political uncertainty and increased mortgage rates. We cut our EBIT forecast by 14%.
Continued progress in Core, challenges in Agency After a frustrating first half, we reduced our FY22E/23E/24E EPS estimates by 9%/6%/8% as we reflect the new guidance for FY22E and rising cost pressures. Growth in the core businesses remains extremely strong, but while LSL continues to transition itself away from the vagaries of the housing transaction cycle, it is not yet immune from it. Encouragingly, the issues in Agency are market-wide and not LSL-specific, and we remain confident that management will take the necessary steps to continue to improve performance. Retain Buy with 450p target price. Sam.Cullen@peelhunt.com, Clyde.Lewis@peelhunt.com, Kyle.Matheson@peelhunt.com 12-page note
Bottlenecks drive downgrades - strategy remains on-track
LSL’s interims reveal increased market share and productivity in Financial Services and Surveying, but slow down in conversion of exchanges into completions has raised the pipeline 26% yoy to £26.7m (Dec 21: £20.7m; June 21: £21.2m), skewing revenue and profit into 2H and probably into 2023.
Strong core performance, but conveyancing delays a drag LSL has seen a frustrating first half, as a record performance in Financial Services and Surveying was offset by continued delays in conveyancing markets, resulting in a £6m profit shortfall. Without this, 1H operating profit would have been c.70% ahead of 1H19. The combination of this shortfall, some cost pressures and the more uncertain macro backdrop leads us to reduce our FY22E operating profit estimates 8% to £45m, and our FY23E 6% to £55m. Our TP comes down from 515p to 450p, but we retain our Buy recommendation. Sam.Cullen@peelhunt.com, Clyde.Lewis@peelhunt.com, Kyle.Matheson@peelhunt.com
Small cost-driven cuts LSL has had a good start to the year, with revenues of £104.5m, in line with the prior year, and good performances from both Surveying and Financial Services (FS). However, cost pressures mean that profits for this year are expected to be slightly behind the prior year, implying small downgrades to the current consensus. We have reduced our EPS estimates by 5% in FY22E and 1% in FY23E, leaving FY24E unchanged. Our TP falls from 525p to 515p. The business continues to transition towards higher growth and less cyclical revenues, which should drive a re-rating over time. We retain our Buy recommendation. Sam.Cullen@peelhunt.com, Clyde.Lewis@peelhunt.com, Kyle.Matheson@peelhunt.com 6-page note
Small reduction to profit estimates, strategy remains on track
LSL’s performance in 2022 YTD shows the benefits of its Financial Services growth strategy and significant progress in its Surveying Division. The impact of housing market cycles will have a reducing impact. As previously reported, the split of H1:H2 profit in 2022 will have a more typical profile (i.e. skewed to H2), after a record H1 2021.
Good start, but some headwinds LSL has had a good start to the year with revenue of £104.5m, in line with the prior year, and good performance in Surveying and Financial Services (FS). However, cost pressures mean that profits for this year are expected to be slightly behind the prior year, implying small downgrades to the current consensus. While Agency has a record pipeline, capacity issues in the surveying market mean there is a risk of some profit deferral into FY23E. Longer term, the growth being seen in Surveying and FS should continue to reduce the group’s reliance on more cyclical revenue streams, driving a structural re-rating over time. Sam.Cullen@peelhunt.com, Clyde.Lewis@peelhunt.com, Kyle.Matheson@peelhunt.com
Delivering the strategy LSL delivered a record performance in FY21 and expects to build on this in FY22E and FY23E, as it executes its medium-term strategy. Reliance on the housing transaction cycle continues to reduce, as the Financial Services business pulls on a number of growth levers, which should help create longer-term value. Alongside this, we see scope for continued growth in Surveying, while the Pivotal Growth JV offers some useful optionality. The shares have de-rated to just 9x earnings and offer good value given the 7% EPS CAGR, and we therefore retain our Buy rating. Sam.Cullen@peelhunt.com, Clyde.Lewis@peelhunt.com, Kyle.Matheson@peelhunt.com 15-page note
Setting the base
FY21 in-line, expectations for FY22E unchanged LSL has delivered a record performance in FY21, with results in-line with expectations, and a strong performance across all divisions. While the mortgage and housing markets are expected to slow following last year’s strong recovery, and backlogs in the conveyancing sector are creating some issues, expectations for FY22E are largely unchanged. Longer term, the group continues to execute its strategy to reduce its reliance on the housing transactions cycle, and in doing so reduce earnings volatility. With the shares trading on just 9x FY22E earnings, we see good value at these levels and retain our Buy. Sam.Cullen@peelhunt.com, Clyde.Lewis@peelhunt.com, Kyle.Matheson@peelhunt.com
What’s new: Full year results confirms 2021 was LSL Property Services’ 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.
In-line results, shares remain materially too cheap
Pre-close indicates FY21E in line LSL is expected to deliver revenues of £327m and a record adjusted operating profit, in line with expectations (cons £50m). With a net cash position of c.£48m (vs our estimate of £41m), the group remains well placed to continue its transition away from the housing transactions cycle, and towards the higher growth Financial Services sector. The shares trade on an undemanding c.10x earnings (c.8x cash adjusted), with a FCF yield of 10%. We retain our Buy rating and 525p TP. Sam.Cullen@peelhunt.com, Clyde.Lewis@peelhunt.com, Kyle.Matheson@peelhunt.com
What’s new: Full year trading update reveals LSL Property Services is “on track with the execution of [its] Financial Services led growth strategy, with further investment in … in H2, which is expected to deliver benefits in future years”.
Upgrading to Buy as the transformation continues While the buoyant market conditions are no doubt helping LSL, they are also obscuring some of the excellent work being done behind the scenes, as the group transitions away from a business overly reliant on the housing transactions cycle. Although we make no changes to numbers today, we are increasing our TP to 525p (from 440p) and raising our rating to Buy to better reflect the longer-term growth opportunities in the Financial Services space and Surveying businesses, where the strong balance sheet gives significant optionality. Sam.Cullen@peelhunt.com, Clyde.Lewis@peelhunt.com, Kyle.Matheson@peelhunt.com 13-page note
Record first half performance LSL has delivered record results, with a strong improvement in underlying profits and a record net cash position. While the performance of the housing transactions market has clearly been a tailwind, it perhaps obscures some of the good work going on beneath the surface of the business. Over the medium term, the group’s reliance on the transaction cycle should start to decrease as it grows its less cyclical revenues streams, which in turn should drive a re-rating. While we make no immediate changes to forecasts, the outlook for LSL is improving. Add. Sam.Cullen@peelhunt.com, Clyde.Lewis@peelhunt.com, Kyle.Matheson@peelhunt.com
Establishing the foundations
Zeus view: We expect 1H underlying operating profit will be 54% of 2021 underlying operating profit of £50m (note: normal split 1:3). With minor adjustments, we leave our Group revenue and profit forecasts for 2021 and 2022 unchanged.
What’s new: Our estimate of LSL’s sum of the parts “SOTP” (Exhibit 1) is 726p, which has continued to rise and the discount LSL share price has widened to 43%: 1 Jan 2021 LSL at 280p was a 24% discount to our SOTP of 539p 30 April 2021 LSL at 305p was a 31% discount to our SOTP of 589p LSL and its reference stocks (Mortgage Advice Bureau, Fintel Group and The Franchise Property Group) have all traded well and their share prices outperformed the FT All Share over the past 30 days, 90 days and year to date.
What’s new: LSL has sold its 32% investment in TM Group, a joint venture whose principal activity is to provide searches, for £29m cash. This follows LSL’s sale in May 2021 of its 49.6% holding in LMS, (Legal Marketing Services, a conveyancing panel manager) for £12m cash. These sales simplify LSL’s Group structure and facilitate reallocation capital into LSL’s Financial Services opportunities. Zeus view: this sale is a good clearing up exercise on sensible terms. The sales of TMG and LMS have realised £41m cash: 1.3x sales; 30x PER; £30m above the book value of investments in JV and associates of £11m. We expect further focus on Financial Services to be discussed with the interims.
Sale of Investment
What’s new: LSL has agreed to sell its 49.6% holding in LMS, (Legal Marketing Services, a conveyancing panel manager), to Private Equity, for £12m cash. The sale simplifies the Group structure, providing further capital for deployment into opportunities to accelerate the Group’s growth strategy, in particular Financial Services. Current Trading: The AGM yesterday provided no update to the detailed comment made on 28 April 2021 (see Exhibit 1, page 2) which revealed a very strong start to all divisions and 1Q21 profit of £13.1m Net bank debt on 31 March 2021 was £8.3m (March 2020: £42.1m). Adjusting for deferred VAT etc, underlying net debt was £17m.
Building on the market’s momentum LSL is benefiting from the current buoyant housing market conditions, and FY21E profits are expected to set a new record. Thereafter, the longer-term growth strategy centred on Financial Services should continue to drive LSL forward, as the group benefits from both structural tailwinds and its own growth initiatives. The shares have performed well in recent weeks but are still reasonably priced at 10x FY22E earnings, we increase our forecasts by c. 20%, raise our TP to 440p and retain our Add recommendation given the current momentum. Sam.Cullen@peelhunt.com, Clyde.Lewis@peelhunt.com 15-page note
Material upgrades and strategic update
Exceptional Q1; >20% upgrades for FY21E FY20 results were in-line with expectations and after an exceptional start to year guidance has been reinstated, which should lead to significant operating profit upgrades (>20%). While LSL is benefiting from a rebounding housing transactions market in the short term, the medium-term growth story will be focused on the Financial Services business which is showing sustained growth and is expected to be the largest profit centre by FY23E, likely driving further upgrades. After a strong run in the past month the shares trade on c. 10x what we anticipate will be the revised consensus earnings for FY21E. Sam.Cullen@peelhunt.com, Clyde.Lewis@peelhunt.com
What’s new: LSL’s results deliver on the recent trading update, namely: Group underlying profit of £35.2m (2019: 37.0m), or £41.5m pre £6.3m Covid-19 costs. Reported net bank Debt of £1.6m (Dec 2019: £41.9m) is “historically low”. All divisions traded well, despite a difficult 1H. For the year 2020: 16% rise in Financial Services EBIT to £13.5m, as it benefited from a rise in Mortgage and Protection completions in PRIMIS, driven by the rise in total financial advisors (n.b. 8% rise in 2020; currently up 15% yoy). 9% rise in Surveying EBIT to £17.9m as it recovered strongly in 2H; 8% rise in Estate Agency EBIT to £15.5m, with 1H materially impacted in 1H by Covid-19 and performance recovering quickly in 2H.
What’s new: The Property Franchise Group PLC (“TPFG”), the UK's largest property franchisor, has reached a long-term agreement for LSL to offer mortgage and protection advice services to all of TPFG’s franchisees. TPFG has over 430 physical offices, conducts the sale of circa 23,000 properties per annum and manages over 73,000 tenanted properties.
Pivotal Growth JV
What’s new: LSL and Pollen Street Capital (“PSC”) have agreed to establish Pivotal Growth (“Pivotal”) to invest £200m building the leading national mortgage broker using market leading tech, first class compliance and exemplary customer service. Simon Embley has been appointed Pivotal’s CEO; he will step down from his role as non-executive Chairman of LSL.
Upgrades after strong start to the year, we raise to Add LSL’s unscheduled trading update indicated that, following a strong end to FY20, the group has made a good start to FY21E. Despite the uncertainties prompted by withdrawn guidance, the debate around the extension of the Stamp Duty holiday and a delayed set of results, we believe it’s now reasonable to assume that the group can deliver some profit growth in FY21E. As a result, we make some significant (30%) increases to our FY21E EPS estimates, while leaving FY22E broadly unchanged. We increase our target price to 280p and upgrade our rating from Hold to Add. Sam.Cullen@peelhunt.com, Clyde.Lewis@peelhunt.com 6-page note
What’s new: Today LSL’s trading update reveals strong 2021 trading, a new £90m Bank Facility and plans release 2020 results in April, reinstating guidance and providing detailed strategic update, including “significant opportunities in financial services.” In 2020, LSL completed £32.6bn of mortgages (3% up 2019), which is c. 9% of total purchase and remortgage market.
What’s new: LSL has announced two important acquisitions (60% stake in Direct Life Quote Holdings Limited for £1.8m, and the business and assets of Mortgage Gym for £2.4m) and made two key appointments (Steve Goodall as new MD of e.surv; Andy Deeks as new Group Chief Strategy Officer).
A strong end to FY20 prompts upgrades
Strong end to the year and 10% upgrades LSL released an unscheduled trading update this morning, increasing FY20E guidance by c.10%. The group saw a very strong end to the year, with Surveying and Financial Services up strongly in December. This should feed through into the Agency business in 1Q, which comes into the year with an exceptionally strong pipeline some 65% ahead of last year. Cleary the sustainability of these trends is up for debate but, with all offices and business open and operating, LSL is well placed to make hay while the sun is shining. The shares trade on 11x CY21 earnings. Sam.Cullen@peelhunt.com, Clyde.Lewis@peelhunt.com
Strong end to the year, profit expectations in line LSL continues to see a recovery in its major markets. The sales exchange pipeline is sitting at a 10-year high and is 60% ahead of the prior year, which should support a strong performance into the year end and into Q1 21. Operating profit for the year is expected to be marginally (c.5%) ahead of last year, c.3% ahead of our estimates. Cash performance has been impressive and net debt sits at just £14m, with further inflows expected in the final two months of the year. The shares trade on 8.6x CY21 earnings. Sam.Cullen@peelhunt.com, Clyde.Lewis@peelhunt.com
Despite a strong H1 from LSL we have rebased 2016 EBITDA estimates to £38m in the light of the group’s cautious H2 commentary. Assuming reduced H2 exchange volumes compared to H2 2015 with the consequent impact on estimates addresses 2016 but the real question is what of 2017? Will a recession see volumes back to 2010 levels? In the absence of any political clarity, the prospects for 2017 remain difficult to assess. On revised 2016 estimates and adj EPS of 23.0p, LSL shares stand on 9.8x P/E, and an EV/EBITDA multiple of 7.7x. We have also taken a cautious line on the dividend, which at 10p offers a 4.4% yield and reset our TP to 230p.
Strong H215 performances from both agency and surveying took LSL to a record underlying operating profit of £42.9m for the year. The small increase on the prior year was as previously guided and is a good result in what was a challenging year for the sector. Management gave a confident outlook for the current year, based on targeted internal initiatives, the ability of its brand to compete effectively, and potential further add-on acquisitions supported by its strong cash-generating capacity rather than on any anticipation of a revival of housing transaction activity
With its interim results in August 2015, LSL targets implied a more than trebling of H215 operating profit compared with H115. Despite a continuation of limited numbers of properties coming to market, macro uncertainty and a number of cautionary comments by peers late in 2015, with this trading statement LSL announced it still expected to deliver on this promise. The mix of revenue was also as expected. We believe the company's expectations on delivery will be well received by the market.
In H115 LSL delivered stable revenue on H114, but investment saw costs rise moderately and the adjusted operating profit and EPS fall by 32%. There was double-digit revenue growth in both lettings and financial services, and the re-engineering last year in the surveying division saw profits rise a third despite flat revenue. Falling H1 volumes in the core sales business were expected and should reverse into growth in H215. Management is confident of delivering FY15 market forecasts.
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