Property group is beating the gloomy market

ESTATE agency and surveying group LSL Property Services yesterday confounded a recent glut of bad news from the mortgage sector by reporting continued improvement in trading.

The York-based group told shareholders at its annual meeting that "activity levels remain encouraging" and a pick-up seen late last year – when it was buoyed by stronger-than-anticipated house sales – has continued in the first three months of the year.

Analysts said LSL appears to be beating the market as its update comes despite downbeat statistics from the Bank of England (BoE), the Royal Institution of Chartered Surveyors (Rics) and the Council of Mortgage Lenders (CML).

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However, the group said it remains cautious due to the forthcoming General Election, which historically dampens demand for house purchases.

"The outlook for the market in the second half of 2010 remains uncertain due to the well publicised economic pressures," said chairman Roger Matthews.

"However, the group is well capitalised and has a strong balance sheet, with growing income streams in asset management and lettings, and a diversified surveying client base, placing the business in a strong position to deliver significant growth through the cycle."

Earlier this week the CML said figures for January to April showed mortgage lending was down by almost a quarter on the previous three months.

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But LSL says it can trade profitably on a rate of 500,000 house purchases annually, and the market saw 597,000 in 2009. That compared to a peak of about 1.5 million and a normalised level of about 1.2 million. Against last year, LSL said group turnover was up 37 per cent during the quarter. Surveying turnover, buoyed by recent contract wins, was up 15 per cent. Estate agency turnover was up 33 per cent on a like-for-like basis.

In January, LSL sealed the acquisition of more than 200 estate agency branches from Halifax for a token 1.

Yesterday it said the branches are performing "as expected", with activity levels building. With these included, estate agency sales were up 64 per cent in the quarter.

LSL expects the Halifax business to generate profits in 2011, with this year's key focus being improving branch income from work such as lettings. The acquisition gave the group a network of 575 branches, including 40 in Yorkshire, making it the second-biggest estate agency group in the country. However, chief executive Simon Embley has previously warned that integrating them will take time – the branches lost 51m in 2008.

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Yesterday, LSL said an unspecified level of cost savings has been taken out of the business.

Analysts estimate the group's cash generation could leave it with no net debt by the end of the year, leaving 75m facilities for expansion. By the end of 2009, debt was almost halved to 25.7m. "LSL continues to offer material recovery potential over the longer term," said analyst Jonathan Fyfe at Mirabaud Securities. "We are happy holders."

Chris Millington at Numis Securities said if the trends continue, the brokerage expects to upgrade its profit estimates.

LSL'S HISTORY

LSL Property Service's core businesses are derived from acquisitions made by General Accident between 1985 and 1988, when it bought estate agency branches, some of which included surveying operations.

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In November 1999, the estate agency business was rebranded Your Move and the surveying business was rebranded e.surv.

The group began its independent life in July 2004, when Your Move and e.surv were bought by management, supported by Barclays Private Equity.

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