An analyst has given Belvoir Lettings, which was admitted to AIM in February, a ‘buy’ recommendation.
Seymour Pierce says that the franchise model for residential lettings agencies works well because it gives a template for a legally onerous process, yet enables the flexibility for local market conditions and entrepreneurial ambition.
It also says: “The expectation that the rented sector will reach 20% of the UK market plays into the hands of residential lettings agencies and provides the potential for multi-property contract awards similar to the 250 property management contract recently secured by Belvoir’s Grantham office for the Belvoir Castle Estates.”
It also notes: “Distress amongst traditional estate agents is attracting them to lettings-focused established umbrella franchises, providing a good acquisition base for Belvoir.”
Belvoir, formed 17 years ago, currently has 142 franchises, and the report praises the firm for ‘the diligent execution of a clear and focused business plan by a competent and disciplined management team’.
The report also refers to the SAFEagent scheme, of which Belvoir is a founding member.
It estimates that there are 10,000 letting agencies across the UK, but says the market is fragmented and represents ‘an exciting opportunity for strong brands to thrive’ whilst ‘many small stand-alone agencies are struggling’.
It says it is ‘entirely plausible’ that Belvoir can expand at the rate of 15 new franchises a year.
It names Martin & Co, Countrywide, Your Move and Winkworth – in that order – as Belvoir’s major competitors.
A ‘buy’ rating is given by Seymour Pierce when it expects an absolute return for investors of more than 10% over the next ten months.
Comments
@ Tony
Most lettings franchisors estimate between 15-18 months break even and to answer Steve's point that usually means cash flowe positive.
In reality this usually takes between 18 months and 2 years, or used to a few years ago. My guess is longer now as all competition does is increase and reduce its fee levels.
Profitability is far more difficult as it depends on so many factors including how hard the franchisee works and above all how supportive his or her partner is. But generally it would be expoected to be by end of year 2 or 30 months if the business is to survive.
This is because it is a numbers game with cumulative returns as assuming properties taken on are retained on the books then those added each year get you to a point where in year 4 or if not year 5 you are making the big bucks.
Problem is most models do not allow fopr losses and assume only wonderful, steady growth.
I'm not sure that Belvoir is a good 'buy'. They have raised capital that will fund acquisitions through franchisees. This is not easy.
Shareholders will expect at least a return of 10% on their money. Letting agents do not sell easily anymore and understand their value. Integration is difficult and expensive. Franchisee's will expect a return on any acquisition and so will Belvoir as the franchisor.
The strategy is fine on paper, delivery is much more difficult. Does Belvoir have the team in place capable of executing such a difficult plan?
It is incorrect to say that the independent firms will struggle, in fact the good independents are thriving and giving Belvoir a good run for their money. Landlords like small and local, they trust business owners.
Making the new influx of cash work will not be easy and investors want results now, they won't wait for long.
Good luck to Belvoir though, I wish them well, they have a bold plan.
Re Tony's question, it depends if you mean how long to be profitable, or how long to be cash flow positive (I'm not being pedantic, they're two entirely different things).
I mentor new Martin & Co franchisees and cover this subject in depth. Turnover is vanity, profit is sanity, but cash flow is king. Profitable business are killed by poor cash flow every day.
For the record my own Martin & Co franchise made a loss in year one, but has made a profit every year since.
Stockbrokers only have 3 things they can recommend; buy, sell and hold. And "hold" doesn't make them any money.
Watch for the "sell" recommendation when the shares become thinly traded and they need to create some volatility to generate commission income.
Does anyone happen to know how long it usually takes a new Belvior or Martin & Co office to reach break even point?