viewM Winkworth Plc

Winkworth's London network proves a strong counter to housing dip

"London is our unique selling point and for all of the uncertainty currently it remains the place to be"

Winkworths built the core of its office network before London property prices took off

A downturn in Britain inspired by Brexit uncertainty and tax changes has made it very tough for anyone involved in housing.

London has been especially difficult with prices in the centre a fifth lower since 2014 and by around 10% in the suburbs.

WATCH: Winkworth outperforms with 2018 profits expected to be ahead of expectations

Estate agent M Winkworth PLC (LON:WINKgenerates 80% of its revenues in London, but even with this bias, a trading update earlier this month was noticeably upbeat.

Both profits and revenue will increase in 2018 while there will also be a higher dividend, it said.

The tone was starkly different to a recent survey by industry trade body, the Royal Institution of Chartered Surveyors. That showed the lowest confidence balance for 20 years, but Winkworths says its own experience is nothing like that.

Dominic Agace, chief executive, said that rather than a problem, the group’s focus and experience in the capital, is helping it navigate the current market volatility.

"London is our unique selling point," he says, and for all of the uncertainty currently, it remains the place to be.

"It’s where the money is, with average revenues double what you earn from an office in the country," he adds.

London still place to be

Established in the eighties, Winkworths now has 100 offices in total, of which 61 are in London.

Most of the network’s offices are in prime locations, something Agace believes it would be nigh on impossible to replicate due to the rise in property prices since the business was set up.

Those situated further afield are in areas that Agace says are ‘affiliated’ with the capital such as Winchester, Brighton and Tunbridge Wells.

All of the 100 offices are franchised, which is another reason the business has continued to perform strongly, believes Agace. They are small offices run by people who can adapt to changing circumstances.

Winkworths, the PLC. controls the brand and maintains the central functions such as IT, but in other areas, it is up to the franchisee.

Agace says the aim is to give them the best of both worlds – the risk and reward of running their own enterprise but also to be part of a network. The model stands up very well in times such as these, he adds.

Large agencies with big offices and high fixed costs have little alternative other than to reduce staff in a downturn, which reduces their effectiveness.

"Ours stay with it," he adds and as they have low overheads, can take a reduced level of income for a while. He intends to expand the network by 6-8 offices a year, a level of growth the network can integrate comfortably.

"No ceiling" is in sight and the flow of applicants to join is healthy. These tend to be either an existing agency business looking to join the network or someone in an agency looking to move up a rung.

Regeneration is also helping to grow the business. It’s an old network now, Agace says, and some franchisees who have been around since the early days want to retire. That provides an opportunity to bring in new blood to drive the whole franchise forward.

New blood and lettings

Someone new and enthused in a London office can triple revenues even in this market. Agace points to the growth in lettings as an illustration of the flexibility of the model.

Lettings income has been rising steadily by 7-8% annually and now accounts for half of the network’s revenue.

Profitability is higher in sales as the fees are bigger, but at a time when transactions are sticky, letting is proving a handy source of income. Helped by this, total revenues this year will top the £5.4mln reported in 2017 while profits are to exceed slightly the £1.4mln expected.

Those figures are just for the central PLC operation. Gross revenues for the network are running at about £46mln.

It’s not all plain sailing. Transaction volumes remain weak, with the biggest problem a lack of houses coming onto the market as sellers hold on, hoping for prices to recover.

Even so, Winkworth ranked second by the number of exchanges and third by the number of new listings in 2018. If volumes do recover, that market share should give scope for a substantial revenue jump.

Encouragingly, this month’s update reported a sharp increase in applicants in December for both property purchases and rentals.

In the meantime, there is a decent and very solid looking yield to support the share price. On the forecast dividend of 7.45p for 2018, up from 7.25p, the yield is 6.5% at the current share price of 115p.

Management was also sufficiently confident to pay a 9p special dividend in July, something few others in the sector can even contemplate.

Quick facts: M Winkworth Plc

Price: 130 GBX

Market: AIM
Market Cap: £16.55 m

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