M Winkworth is another estate agent going cheap

Now enjoying a pre-eminent position in the mid-to-upper segments of the sales and lettings markets, M Winkworth is worth a look, writes Mark Watson-Mitchell.

A couple of weeks ago I featured a profile on the fast-recovering Foxtons estate agency group, the leaders in the London residential and letting market.

Today I would like to highlight the investment attractions of yet another agency group.

With its origins able to be traced back to 1835, the M. Winkworth (LON:WINK) business today is the leading London franchisor of residential real estate agencies. It now enjoys a pre-eminent position in the mid-to-upper segments of the sales and lettings markets. 

It operates on a franchise model, which allows entrepreneurial real estate professionals to provide the highest standards of service under the long-established Winkworth brand name, while also giving them group support and promotion.

A quick history

Set up in Mayfair 186 years ago, the original business was operated by the Winkworth family. 

The Agace family moved in 132 years later when their Mann & Co estate agency business acquired Winkworth’s.

Seven years later the group’s current Chairman, Simon Agace, acquired sole control of the company and its then three central London offices.

Within six years it had grown to eight branches and was beginning to establish the Winkworth name across central and west London.

Simon Agace had been over in the States and participated in property syndication. There he saw the way that franchised businesses could grow. The franchise concept was rarely used at this stage by estate agents in the UK.

However, in 1981 he started to convert the eight wholly owned offices into franchises. The concept provided an opportunity for Simon Agace’s senior managers to own their own businesses while allowing him to retain their skills and knowledge for the benefit of Winkworth. 

The group now has a network of over 86 offices run by an experienced management team which has been responsible for the development of the Winkworth proposition.

The franchising business model

The business model offers a branded platform to estate agents from which to access the group’s comprehensive range of support services such as compliance, marketing, public relations, training and administration services. 

It also offers additional products such as financial services, auctions, surveying and commercial property sales. Franchising, however, remains the main focus and will continue to shape the business and its profits going forward. 

When reviewing applications for franchises it uses a highly selective process to minimise office closures through failure. 

They ensure that the business plan and funding are appropriate to launch a new franchise, giving new franchisees the greatest chance of success. 

The group has a tight equity

The group has some 12.7m shares in issue of which Chairman Simon Agace holds 41.77% and Chief Executive Dominic Agace holds 5.04%, with Lawrence Alkin, another director, holding 3.16%.

Apart from Canaccord Genuity Wealth holding 9.42% of the shares, two other holders worth noting are Dato Bujang Zaidi with 7.89% and Professor Dato Mohd Shukri Ab Yajid with 4.20%.

Broker’s estimates

On Wednesday of last week Shore Capital Markets, broker to the company, raised its earnings and dividend estimates for the current year to end-December.

Impressed by the strong performance in the group’s sales in the first half, not to mention better gross profit margins, the broker is now looking for revenues to rise from £6.4m last year to £8m this year.

That should see adjusted pre-tax profits increasing from £1.5m to £2.1m, worth 13.4p per share in earnings against 9.1p last year. 

At the current price the current-year price-earnings ratio would be just over 14 times, which for a ‘premium franchise business’ is an attractive proposition.

Accordingly, the broker’s analyst Alastair Stewart has pencilled in a dividend of 8.8p per share (6.7p) for the year.

In avoiding a reliance on debt, the company has no current intention to change its strategy of retaining a healthy level of cash for use should opportunities arise. 

My view

This company is a wonderful play on the residential property sales and letting market in the UK.

At the current 190p the shares have certain upside attractions, despite having risen from just 95p at the end of March this year. 

Ahead of the company’s early August trading update, I now set a target price of 240p, which would only then put them out on just 17.9 times current year earnings.