Estate agent enjoys growth but says market still bleak

The York-based group said underlying pre-tax profits surged 52 per cent to £25.8m in 2010, adding its balance sheet gives it the firepower to do more acquisitions.

“We’ve got a very pessimistic view of housing transactions,” said chief executive Simon Embley. “There’s not going to be a quick recovery in the market in our view because the housing market is governed by liquidity.”

Figures from the Bank of England earlier this week showed a seven per cent rise in mortgage approvals to 45,723 in January, but well down on the 70,000 to 80,000 approvals a month considered to be consistent with a stable housing market – and less than half the 100,000 approvals a month seen during the credit boom.

York-based housebuilder Persimmon on Tuesday reported an “encouraging” start to the crucial spring selling season, with visitor numbers up 10 per cent and sales of £848m achieved so far this year.

Mr Embley said it was “good news” state-owned lender Northern Rock is resuming 90 per cent loan to value mortgages, “but it’s important not to get the mist in front of us – the amount will be tiny”.

“Until Lloyds and Royal Bank of Scotland recharge their balance sheets you won’t see a (revitalised) market for a good while to come,” he said.

Instead of relying on a housing market recovery, LSL plans “self-help” measures to gain further market share.

“Our share price and profits will probably double with doubling of the size of the market,” said Mr Embley. “But we’re not sitting on our heels thinking the market is going to come back very quickly.

LSL said it has integrated the chain of Halifax estate agencies bought from Lloyds, moving from £51m losses in 2008 to £400,000 profits in the final six months of 2010.

The estate agencies came with £22.2m cash and net assets worth about £38.4m, but the deal was by no means a “slam dunk”.

“We’ve got a good track record of buying stuff and integrating it,” said Mr Embley, adding it wants to do more bolt-on deals. “Halifax could have given us massive indigestion; it could have been a disaster for us. But that’s fully digested in our business.”

With Bank of England policymakers increasingly talking about raising interest rates, Mr Embley said LSL can benefit by winning surveying work on remortgages.

“We’ve already seen a significant rise in remortgaging activity in January and February,” he said.

Rate hikes could also lead to more reposessions, as homeowners struggle to meet increased mortgage payments, and Mr Embley said this would benefit its asset management arm which works with lenders on distressed assets.

LSL said revenues increased by 31 per cent to £206.6m, and by 16 per cent to £182.4m on a like-for-like basis.

Its underlying operating margin increased from 18 per cent to 19.3 per cent. LSL declared a final dividend of 5.9p per share, giving a total dividend of 8.4p, a 56 per cent increase on the 2009 payout.

Market share in the highly fragmented estate agency sector increased from 2.7 per cent to 4.5 per cent, driven both by the Halifax acquisition and organic growth. The group ended the year with net debt of just £4.9m and a £75m facility. Shares in LSL yesterday gained 4.84 per cent, closing up 12p at 260p.