Belvoir Group – Not letting the grass grow

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Belvoir Group – Not letting the grass grow
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Master Investor Magazine Issue 58

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The UK’s largest residential lettings property franchise has been making some canny acquisitions of late and is due to report on trading soon, writes Mark Watson-Mitchell. 

In just a few weeks we should be getting the pre-close trading update for the end-December final figures from the Belvoir Group (LON:BLV), and I expect that they will show that the company is undervalued.

The group is the UK’s largest property franchise company delivering residential lettings and sales, property management, as well as property-related financial services.

We had a positive pointer from the company when it announced that one of its subsidiaries, Newton Fallowell, had paid £2m cash for the 19-branch Lovelles Estate Agency business in the second week of December.

The acquired company made a £500,000 operating profit on just £100,000 of net assets in its year to end March 2019. It makes a perfect fit into the Belvoir group.

At the time of the acquisition the group declared that trading in the second half of Belvoir’s financial year had continued to be strong – and that it was confident that it would comfortably achieve market expectations for the full year to end-December 2019.

With the Lovelles purchase now added, it takes the Belvoir nationwide property franchise network up to an impressive 391 offices.

Those offices are spread across five brands: with three operating as letting and estate agents – Belvoir, Newton Fallowell and Northwood; and two in financial services – Brook, and MAB Glos.

Today the group, which has its central office based at Grantham in Lincolnshire, must now manage well over the previously declared 64,650 properties.

There are currently some 34.94m shares in issue.

Institutional and large shareholders include Canaccord Genuity (9.96%), Miton (8.49%), the former chairman Mike Goddard (6.31%), Living Bridge (5.93%), Andrew Goodson (5.85%), Unicorn Asset (5.79%), Legal & General (3.95%), Lazard Asset (3.68%), Chelverton (3.43%), Ruffer (3.30%) and Killik (2.98%).

That growing number of properties under management really does drive a significant revenue – it was £13.7m in 2018 and the latest estimates suggest that for the last year it could have risen to £19m.

Brokers are looking for £5.7m pre-tax profits for 2019, worth 12.4p in earnings and easily covering a 7.4p dividend per share.

For the current year to end-December 2020 revenues could increase to £21.7m, with profits of £6.5m, pumping earnings up to 14.3p per share and giving a 7.6p dividend.

With the benefits of a better property market after the Brexit fiasco is well and over, we could easily see £23.5m of sales in 2021, generating a £7.2m profit, producing 15.7p earnings and a dividend of 7.9p per share.

However, if the group carries on making such cheap purchases, as it has with the Lovelles chain which came in at 4 times profits, then we can expect to see those estimates easily exceeded.

A big part of the Belvoir strategy is that it looks to build up its property management side, while using its growing financial services facilities to offer mortgage financing across all the group’s offices.

The trading update, which is likely before the end of January, will give us a better steer on where the group is going as it enters the new decade.

With its shares trading at around the 147p level, they are on a mere 11.4 times historic price earnings ratio and yielding a very attractive 5.2%. For 2020, that rating improves to 9.8 times current year p/e and a 5.4% yield.

In my view, that is too attractive an investment proposition to pass up. I now set an end-2020 target price of 175p.

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