A 25% half-year dividend hike from estate agency group Belvoir (BLV) demonstrated the strengths of the company’s business model in what has been a challenging period across the housing market.
Belvoir’s focus on lettings – which account for nearly two thirds of gross profits – helped it drive overall sales 3% higher to £15.9m, even as franchisee revenues from sales slipped 9%. It now manages 75,000 properties, a 2% year-on-year increase providing a high-level of recurring sales and revenue visibility.
It also saw an 11% increase in financial services revenues to £8.6m, as the company’s network of entrepreneurial advisers offset a hiatus in new mortgage by focusing on strong demand for remortgaging as homeowners looked to beat interest rate hikes.
The company was also able to reduce its admin costs by 7% to £5m, supporting a 10% increase in pre-tax profit to £4.4m, equating to earnings per share of 9p, and generating solid cash flows. As well as an increase dividend, that’s being funnelled into acquisitions which should drive further growth – it acquired two financial services business for £2m, while its assisted acquisitions programme is helping its franchisees buy local competitors.
Broker finnCap upgraded its full year EPS forecast by 8% on the back of the solid half-year showing, and 7% in 2024, which leaves the shares trading on a forecast PE ratio of 11.1x. The broker sees 70% upside to its target price of 375p, a valuation based on a free cash flow yield of 5.3%, against the current 9.5% which it argues “fails to reflect the track record and continued opportunities to grow.”
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The private rental market is suffering from an acute shortage of properties, which with strong tenant demand is driving rents upwards – as broker finnCap notes, the ONS rental index was up 5.2% in the first half of 2023.
That’s translating into strong business for Belvoir, which it puts down to the highly entrepreneurial nature of its franchisees – a characteristic that’s also helping it outperform a tough sales and mortgage market.
The shares have recovered some lost ground in recent months, but are still well below their highs of 2021, despite a clear demonstration of the strength of the group’s business model and the comfort of its high levels of recurring lettings business.