'House' broker Shore Capital has repeated its estimated DCF-derived fair value of 189p per share for OnTheMarket PLC (AIM:OTMP) (OTMP) after the agent-backed property portal published results for the six months to end-July 2022.
The ShoreCap analysts said they consider this "an extremely modest valuation" which suggests "very attractive upside potential following recent, and in our view unwarranted, share price weakness".
OnTheMarket shares, down 21% over the past six months, were up 1.4% to 74.50p in late afternoon trading on Thursday following the H1 results which the analysts said detailed "a pleasing performance featuring a combination of financial, operational and strategic progress".
READ: OnTheMarket renews client listing agreements; brings on board significant new customer
The interim results confirmed a 14% increase in group revenue to £17mln whilst it continued to be profitable amidst a period of strategic investment into marketing and the team, reporting an adjusted operating profit of £1.3mln.
The company highlighted a strong balance sheet and £3.1mln of cash generated from operating activities. It ended the half year with £8.7mln of cash, and, had no borrowings.
During the first half, Onthemarket renewed key contracts with high-profile agency customers, it added London specialist Foxtons in July, and since the period’s end (in August) added Lomond Group.
The ShoreCap analysts pointed out that current trading and forward-looking comments acknowledge macro-economic and geo-political uncertainty but note that housing market transactions have remained at normal levels over the past six months and express confidence that the group’s contractual listing agreements offer a “clear and valued proposition for agents and housebuilders”.
Specifically, they said, OnTheMarket has “continued to trade well" and its board is confident that it will meet full-year expectations, with revenue growth and a largely fixed cost base contributing to increased operating margins during H2.
Environment for agents remains robust at present
Separately, the analysts noted that recent updates from a range of market commentators/surveys - including the Halifax Price Index and OTMP’s own Property Sentiment index - have suggested that, notwithstanding a more challenging backdrop and growing uncertainty, the environment for agents remains robust at present.
The ShoreCap analysts concluded: "We are pleased to note this H1 performance, momentum in securing new and existing advertisers and positive outlook assessment. In addition, we believe the quality of OTMP’s tech-enabled offering, its commitment to innovation and fair pricing and its ability to offer equity participation mean it is strongly placed to increase ARPA and its agent base and drive long-term growth.
"Importantly, we also expect these features to become increasingly attractive if the profitability of agents is challenged by a more muted housing market. By way of comparison, our forecast monthly ARPA for Rightmove across FY22F (£1,309) is more than six times the £214 full-year figure we estimate for OTMP."
Based on our current financial forecasts, which we are leaving unchanged, the group’s stock is trading on FY23F P/E, EV/EBITDA and DY ratios of 11.4x, 6.4x and 1.4% improving significantly to 7.9x, 4.2x and 2.7% in FY24F," the analysts concluded.