Martin & Co have now released their interim results for the year ending 2015.
Revenues increased then compared to the first half of last year as a £30K fall in franchise sales was more than offset by a £1.1M increase in management service fees with Xperience contributing £900K of the growth and Martin & Co contributing £200K, a growth of 10%, along with a £19K growth in other revenues. Cost of sales also fell somewhat to give a gross profit some £1.1M ahead of last time. Depreciation and amortisation increased by £119K year on year due to the amortisation of acquired intangibles and other admin expenses grew by £471K due to a £300K increase in personnel costs relating to the Xperience brand and the rest on other admin expenses before a £115K charge relating to redundancy costs due to reorganisation following the acquisition of Xperience, meant that the operating profit was £395K higher. We then see a £43K bank interest charge and a £68K increase in tax to give a profit for the year of £919K, an increase of £288K year on year.
When compared to the end point of last year, total assets increased by just £28K driven by a £394K increase in cash, and an £84K growth in prepayments and accrued income, partially offset by a £255K fall in assets held for sale and a £82K decline in the master franchise agreement. Total liabilities fell during the period, mainly due to a £250K decline in the bank loan and a £115K fall in deferred tax liabilities. The end result is a net tangible asset level of £549K, an increase of £542K over the past six months.
Before movements in working capital, cash profits increased by £508K to £1.3M. After a £49K interest charge and a £196K tax payment, the net cash from operations came in at £927K, an increase of £285K year on year. The group then only invested £5K in capital expenditure and received £287K from the sale of intangible assets relating to the sale of the managed portfolio to G Fisheries along with deferred consideration on owned offices disposed of in 2013, along with £29K in interest to give a cash flow of £1.2M before financing. The group then paid back £250K of the loan and paid out £594K in dividends to give a cash flow for the period of £394K and a cash level of £3.8M at the period-end.
During the year the group added new office openings in Bristol and Gloucester under the CJ Hole brand and in Kingston, Chester and Plymouth under the Martin & Co brand. It is anticipated that that a further two offices will be opened for CJ Hole in Worcester and Cirencester in the second half. At the period-end, the group had 284 offices which were franchised and operated by 239 franchisees.
In lettings, high tenant demand continued with 65,917 viewings in the period compared to 63,698 in the first half of last year and the total tenanted managed portfolio across the group remained stable at about 44,000. Apparently, following the announcement in the budget of changes to landlord tax allowances, a survey suggested that 90% of landlord clients intended to maintain or expand their portfolio.
At the end of the half year, there were 164 Martin & Co offices offering an estate agency service with 3,079 properties listed for sale compared to 145 offices and 2,161 properties listed for sale at the same point of last year. Since September the group has also offered a “no frills” online agency service but there has been very limited take-up with less than 5% of lettings and 1% of estate agency revenue generated from this source. There was a slight dip in listings at the Xperience offices with 4,730 listings compared to 5,465 in the first half of last year which suggests that estate agency activity has been slower this year.
A new factor this year has been the length of time it takes for a sale to progress to completion, increasing from 3 months traditionally to between four and five months this year. It is thought that this may be as a result of reduced capacity in conveyancing firms. At the end of the period, the pipeline of sales agreed stood at £4.9M for Xperience and £1.7M for Martin & Co compared to £4.65M and £820K respectively.
The group have now substantially completed the integration of the Xperience divisional functions into the head office. They will be increasing their focus in the second half of the year on franchise sales activity as they believe that each of the five brands is capable of further development through a mix of franchisee recruitment, encouragement for existing franchisees to expand and the conversion of competitors to a franchise model.
The lettings business has traditionally performed more strongly in the second half of the year and the board expect this to be the same for the estate agency business. The slower start to estate agency transactions this year is apparently reversing and the value of transactions exchanged at £6.6M was 21% higher in June than in the same month last year.
During the period the group sold its 374 lettings properties in Saltaire, its main franchise operator in the region, G Fisheries ltd.
The group currently has unutilised debt facilities of £2.75M available should it need them, along with cash balances of £3.8M and the CEO has stated they might go for another acquisition if the right target presented itself.
The UK housing market is recovering and the buy to let sector remains healthy with all the drivers for further growth remaining in place. During the period, management spent considerable time during the half year consolidating the acquisition of Xperience and the value of the business materialised despite some restructuring costs. Trading in the second half of the year is historically stronger and management is confident that the group is well placed to deliver a strong performance.
After a 38% increase in the interim dividend, at the current share price, the shares are yielding 2.8% which increases to 3.2% on the full year consensus forecast.
Overall then this was a good set of results for the group. Profits increased year on year, net assets were up as the bank debt was paid back and operational cash flow increased which, due in part to negligible capex, gave rise to a decent amount of free cash. The estate agency seems to be gaining traction and the lettings market seems to be strong. The dividend yield for the full year is currently 3.2% which seems to be a decent incentive to me so I have bought in here.
On the 22nd October the group released a trading update covering the first nine months of the year. Total revenues have increased by 47% to £5.3M and total management service fees increased by 64% to £4.6M. Management fees from the lettings business grew by 33% to £3.5M and management fees from the sales business grew five-fold to £1M with this growth primarily attributed to the Xperience acquisition last October. The Martin & Co branded network achieved 6% growth in fees from lettings and 78% growth from sales. All in all, trading up to the end of September has been in line with expectations.
On the 20th January the group released a trading update covering the year ending 2015. Overall revenue was up 38% to £7.1M with a strong 53% year on year growth in management service fees revenue which gives a net cash position of £2.3M at the year-end. Trading in general was in line with expectations.
The past year has been focused on the integration of Xperience and realising operational efficiencies at a head office level. The four established Xperience brands have seen year on year growth in lettings revenue of 10.5% and Martin & Co has seen 76% year on year growth in estate agency. Additionally operational economies of £400K per annum have been realised and the one-off restructuring costs were fully absorbed in 2015 trading. There were eleven acquisitions of tenanted managed portfolios that added 900 properties.
Government intervention in the buy to let sector will result in an increased tax burden for smaller investors with mortgage debt or for those who plan to purchase additional properties to add to their portfolio. The fundamental drivers for expansion of the UK private rented sector over the past decade remain in place, however, such as high net migration, a restricted supply of new housing stock and deposit hurdles for first time buyers.
The board do not expect these recent changes to the buy to let sector to significantly impact their business. They are well positioned to sell investment properties if investors do decide to exit and their research suggests that larger investors will purchase this stock. Also, buy to let investors have generally reduced gearing in their portfolios over the years since 2008 and are well positioned to absorb rising interest rates. The board remain positive about the outlook for their core lettings business.
Overall this looks like a pretty decent update and I am tempted to buy back in here.