Belvoir Group PLC (AIM:BLV) has said its financial performance for the year ended 31 December 2022, including profit before tax, is anticipated to be slightly ahead of management's expectations but cautioned that profitability in 2023 as a whole is likely to be slightly below 2022.
In a pre-close trading update, the leading UK property franchise and financial services company noted that its group revenue increased to a record level for the year, up 13% to £33.5mln from £29.6mln in 2021 as the housing sector performed better in 2022 than many commentators had forecast at the start of the year, with UK residential sales transactions down 15% on 2021, but around 6% ahead of pre-pandemic levels, and rents on new tenancies increasing by 10.8% during the year.
During the year the Belvoir extended its reach through the acquisitions of TIME Mortgage Services, which expanded the group network of mostly self-employed financial services advisers, and Mr and Mrs Clarke (MMC), which provided a platform from which to develop Belvoir's personal estate agency franchise model. Since being acquired in May and March 2022 respectively, TIME has already contributed revenue of £2.6mln and MMC has gained further traction in recruiting agents into six new territories.
Revenue from the company's financial services division increased by 24% to £17.9mln (2021: £14.4mln), with the network of financial advisers increasing by 21% to 294 (2021: 243). Revenue from the property division was up 1% to £15.5mln (2021: £15.3mln) with the lettings to sales ratio at 77:23 (2021: 74:26). Management service fees (MSF), the key underlying return from franchisees, continued to grow, up 2% for the year to £10.9mln (2021: £10.7mln) with the stronger lettings market more than mitigating lower sales activity.
Furthermore, the group's highly successful assisted acquisitions strategy regained momentum following two years of subdued activity due to Covid, and enabled franchisees to complete on 14 (2021: 7) assisted acquisitions, which added £3.9mln per annum (2021: £1.2mln) in franchisee revenue.
Belvoir said the highly cash-generative nature of its operating activities, underpinned primarily by the recurring lettings business, enabled the group to move into a positive net cash position of £1.1mln at the year-end (2021: £1.3mln net debt), despite having deployed £4.0mln of cash on corporate acquisitions.
Mini-budget caused issues
The company noted, however, that the UK government's mini-budget in September 2022 created a high degree of uncertainty within the property and related financial services markets. Between August and December, base rates doubled from 1.75% to 3.5% which led to a rapid rise in mortgage lending rates, the withdrawal of many mortgage products by lenders and a tightening of mortgage criteria. This impacted on instruction levels for house sales and demand for mortgages in Q4 which will in turn impact trading in H1 of 2023. At the same time, borrowers with mortgage offers were keen to complete on their house purchases before their offer expired, resulting in the level of fall-through of transactions in Q4 being minimal.
The new chancellor, Jeremy Hunt's subsequent Autumn statement reversed many of the fiscal initiatives proposed in the mini-budget, which somewhat reassured borrowers and lenders, Belvoir noted, but whilst the level of sales instructions and mortgage applications to date in 2023 have shown signs of improvement compared with Q4 2022, the recovery is expected to build slowly over the year.
Given the lead time from instruction to completion of a house sale and from mortgage application to drawdown can be up to five months, the improvement in activity in H1 is not likely to flow through into financial performance until H2. As a result, the company said, profitability in 2023 as a whole is likely to be slightly below 2022 but is expected to return to an upward trend in 2024.
In the trading update, Dorian Gonsalves, Belvoir CEO, commented: "I am delighted to report that during 2022 our acquisition strategy both at group and at franchisee level enabled Belvoir to both extend its service offering and mitigate the lower level of activity in the housing market following the exceptionally strong conditions in 2021.
"Our property franchisees and financial services advisers are highly motivated entrepreneurs who continue to demonstrate the ability to make the most of the opportunities presented in all market conditions. Our property franchisees benefit from significant recurring lettings revenue that contributes around 56% of group gross profit and our financial services advisers have substantial client books from which to offer remortgages and other financial products, so are not entirely reliant on new mortgage business."
He added: "Whilst we anticipate continuing challenging market conditions in 2023, we remain confident that the resilience and diversity of our business model will enable the group to perform well against the market as a whole. As always, the board will continue to identify suitable acquisition targets to support continued growth and enhance shareholder value still further."
The company said its audited results for the financial year ended 31 December 2022 will be announced on Monday, 27 March 2023.