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Belvoir Lettings: THE INVESTMENT CASE
INVESTMENT OVERVIEW

Belvoir Lettings quietly expanding as others struggle with property uncertainty

At 61,000 properties under its management, Belvoir is the UK’s second largest lettings agent
Belvoir
INVESTMENT OVERVIEW: BLV The Big Picture
Franchisees are keen to acquire new branches

Letting agent Belvoir Lettings PLC (LON:BELV) is on course for a 22nd year of profits growth after a strong first half.

Underlying profits jumped 19% to £2.43mln in the six months to June, which is impressive, given the uncertainties surrounding UK property at present.

WATCH: Belvoir 'continuing to outperform both UK lettings and sales markets'

At 61,000 properties under its management, Belvoir is the UK’s second largest lettings agent.

Countrywide is the largest with 110,000 properties but it has faced no end of trauma over the past year due to the slowing house sales market, culminating recently in a £140mln rescue fund-raise.

Belvoir’s exposure to the house sales market is less than 20% of its business and in contrast to Countrywide, its franchisees have been expanding operations.

Most of its network is run through a franchise operation and helped by Belvoir’s assisted-acquisition programme, they made 20 acquisitions in the first six months, adding turnover of £5.1mln.

READ: Belvoir Lettings lifts profits by 19% as franchisees shrug off tough property market

Belvoir benefits as the enlarged turnover eventually feeds through into its management service fees (MSF).

MSF accounted for £4mln of the first half’s £6.1mln revenue. 

Dorian Gonsalves, Belvoir’s chief executive, is ex-Countrywide and keeping an eye on what is happening at his former employer.

At present, though, Belvoir has a market cap of £37mln and taking on all of Countrywide’s lettings book would be a significant step.

In the meantime, Gonsalves would welcome some clarity over when proposed changes to the tenancy rules are to come into force.

A proposed ban on tenant fees and increased regulations to professionalise the lettings sector were first mooted in 2016 but have yet to be enacted, something that is clouding investors’ perception of the lettings business.

Need for clarity over rental changes

Gonsalves believes the changes will be introduced in April next year and combined with the tax increases introduced by George Osborne when he was Chancellor might see up to 20% of letting agents close over the next three years.

Again, that is an opportunity, he says, but concedes Belvoir will not escape unscathed if there is a sharp reduction in the number of landlords renting.

But Belvoir’s network has shown itself to be resilient so far and once the rules do come in, he is confident the company’s franchisees will adapt.

Gonsalves says the market share of online entrants into the lettings market is just over 8% with nowhere near the disruption the house sales market has seen from IT-based entrants.

The strong service element required for running a successful lettings agency is a major barrier to entry, he adds.

Own platform

Belvoir has started to develop its own platform that will also allow landlords on its books instant access to records, advice, tradespeople and so on.

Half-year profits jumped 66% to £2.83mln, though this included a write-back on the earn-out contribution for the acquisition of Northwood.

Stripping that out, half-year underlying profits rose to £2.43mln from £2.05mln on sales of £6.12mln (£5.14mln).

Northwood’s final settlement will cost £4.16mln which will be met either through cash or shares or a combination of the two.

Shares are at 108p.

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