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Belvoir Group PLC is a major UK property franchise group, supporting a network of 439 offices across six distinct brands, specialising in residential lettings, property sales and property-related financial services. The company is listed on the AIM market and has a market cap of £90m.
We were delighted to welcome the CEO, Dorian Gonsalves and CFO Louise George, to a webinar for private investors to introduce the company, talk about how they have performed during a tough year impacted by Covid and the attractive opportunities that lie ahead. A recording of the webinar is available here.
Before getting into the presentation Dorian pointed out that Finn Cap had recently published a new research note on the company with a 334p TP compared to the current market price of 240p. This note is available free of charge from Finn Cap, Research Tree or by contacting IR at Belvoir. Looking at the note after the webinar I was slightly surprised to see that the Finn Cap analyst is not forecasting any growth in 2022 vs 2021 which looks anomalous against the historical growth rates achieved by Belvoir. Potentially there is scope for this to be upgraded as we progress through the year.
There were a large number of shareholders on the call who would likely need no reminding that the share price has doubled over the last year. Dorian thought this was due to the company achieving their pre-Covid forecasts, the rental market being very active and the stamp duty tax break helping sales volumes. The company made profits of just over £7m on turnover of £21m in 2020 and in the trading statement published at the end of May the company reported that they were trading materially ahead of expectations.
By way of introduction, Dorian said that he had pretty much spent his whole career in the property market and has been at Belvoir for 16 years. The majority of his wealth is held in Belvoir stock and options. Alongside him, CFO Louise George has been on the boards of a variety of AIM companies for the last 19 years and has been with Belvoir for 7 years.
Looking at the operations, Belvoir operates through two divisions: a network of property franchisees and a network of financial advisers, which combine to support customers throughout their property journey.
The largest brand is Belvoir which operates from 163 offices in primary or secondary locations with a fully staffed team. These offices on average generate turnover of £300k per annum and a % is paid to the Belvoir Group as a franchise fee. This covers central services, training, regulation, compliance and central advertising. Dorian described it as Belvoir Group providing the tools for each franchisee to grow their business and some offices generate turnover in excess of £1m. These franchisees sign 15-year agreements split into 3 blocks of 5 years. In general, 90% of revenues come from residential lettings and 10% from estate agency. This split is replicated at the next largest brand, Northwood, which operates from 91 offices. Newton Fallowell, which operates from 38 offices has a different revenue split with 75% derived from estate agency and 25% from lettings. In the current buoyant housing market this business is performing very wel. There are two other brands in the property division: Lovelle with 16 offices and Humphreys with 20 offices. Lovelle which was only acquired in 2020 has now converted all offices into franchisees. Humphreys which was acquired early this year is focussed on the student lettings market and 87% of its revenue comes from 6500 tenants. There are still 3 corporate branches within Humphreys and these are expected to be sold to franchisees in due course.
Finally there are 39 Belvoir branches operating from within the Nottingham Building Society branches.
The financial services division operates through the Brook business which was acquired 5 years ago. There are now 240 financial advisors operating through 100 offices. These advisors operate under the Mortgage Advice Bureau umbrella platform. Interestingly Dorian mentioned that only 10% of mortgages offered go to individuals introduced from Belvoir Group property offices so there is quite significant potential here for additional sales. The 2020 financial highlights were touched on. Revenues of £21.7m were up 13% and Management Service Fees (MSF), a recurring revenue number, was up 3% at £9.1m. Dorian pointed out that MSF have grown every year and give the business very good revenue visibility and predictability. PBT was up 20% to £6.7m and EPS rose 14% to 15.1p. There were 8,003 housing sales and 12.094 mortgages. In the first 4 months of this year 4,000 mortgages were written illustrating the strength of the housing market and the potential for last years figures to be beaten.
Dorian then presented a very succinct slide on 6 reasons to invest: Proven multi-brand franchise network model with very incentivised franchisees who are effectively all running their own businesses; there is a 24 year record of unbroken profit growth and management are expecting that to continue this year; there is an experience management team with 12 years average length of service; 60% of revenues is from recurring lettings revenues; there has been a very successful diversification into financial services which now generate £2.8m of gross profits and the company has a successful acquisition model making 8 acquisitions since 2015.
Summarising the current trading position in 2021, Dorian commented the business had started the year very strongly with growth across residential sales, financials services and lettings. MSF are already up 20% year on year, financial services revenues are up 24% and written mortgages up over 60%. They are still looking out for appropriate acquisitions and expect to make more acquisitions towards the end of the year. The recent trading statement confirmed that trading is exceptionally strong and ahead of management expectations.
A few topics were discussed in more detail during the Q&A at the end of the presentation. The Nottingham Building Society deal (which completes on 31 July) was of particular interest and could provide significant additional growth opportunities. The business turned over £600k and should generate £125k operating profit this year according to the sellers forecasts. Belvoir expect to do better. There are currently 50k Lifetime ISA customers who could potentially be introduce to Belvoir in the future when they go to buy their first property. On top of this NBS are hoping to double the number of LISA savers in the next 3 years and Belvoir believe there is a large potential growth opportunity here.
Further acquisitions will be considered not just for themselves but supporting their franchisees to make acquisitions and grow their businesses and overall, the blend between organic and acquisitive growth should be similar to historical levels.
Belvoir will continue with their multi brand strategy as they believe this gives better growth opportunities and their research suggests consumers want local experienced estate agencies in their areas.
Management have all bought shares in the market during their time as directors as well as holding options as part of the company LTIP. Over a period of time Dorian mentioned he had exercised some of his options and kept onto some of these but also sold some to settle tax liabilities as well as taking some funds out of the business. He did mention though that over the next 12 months he intends to add to his holding. The majority of his net wealth is in the business.
On average mortgage brokers will generate £1500 from each mortgage written. These advisors are experienced and have their own client business and so are not reliant on the existing property customer base. It is highly likely that existing franchisees will purchase financial services businesses to grow their business over the coming years and Belvoir will help them do this.
The business has £5.3m of cash at the end of June (after the Humphreys acquisition). They look to keep a dividend cover of 2x and net debt is approximately £4m. Surplus cash is used to invest in the business and a special dividend is unlikely at this point in time.
Overall, this was a very informative update and it was great to hear how well the business is performing currently.
A recording of the webinar is available here. If you would like further information on other webinars organised by Yellowstone Advisory, please contact info@yellowstoneadvisory.com