OnTheMarket “expecting 2H revenue to double to £1m” says Zeus Capital

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OnTheMarket plc (LON:OTMP) interims to 31 July 2020 provide colour to recent announcements, which reported YoY growth and cash generation. Key points are:

28% rise in revenue to £10.2m (1H19/20: £8.0m) net of £1.8m of customer support discounts or “Covid-discounts”, with ARPA rising 15% to £124/month and 9% rise in average number of advertisers to 13,592;

67% fall in marketing to £2.2m (1H19/20: £6.6m); data analysis will enable targeted marketing spend to improve effectiveness of OTM’s advertising;

12% fall in overheads to £7.2m (1H19/20: £8.2m), with £0.5m savings from CJRS and voluntary pay waivers by staff;

£0.7m profit after tax (1H19/20: £7.0m loss);

July 2020 activity: 27.5m visits (up 173%) & 148 leads/advertiser (up 56%);

£10.3m of net cash on 30 September, up £0.5m from £9.8m on 31 July;

Jason Tebb joins the group as CEO on 14 December.

Clive Beattie, Acting CEO, said: “Assuming the UK housing market remains open and active, the Group expects revenues and costs to increase in the second half, as it invests to enhance service and increase value to customers. The Group expects to achieve a broadly breakeven adjusted profit for the full financial year.”

Zeus view: Revenue, pre-Covid-discounts, rose 50% yoy to £12.0m (1H19/20: £8.0m): Agent advertisers £11.4m (1H19/20: £8.0m; 2H19/20: £10.7m), New Homes £0.5m (1H19/20: nil; 2H19/20: £0.1m) and £0.1m from other advertising.

We continue to forecast current year revenue of £22.0m (i.e. £24.6m revenue pre-Covid-discounts), with £0.8m of Covid-discounts in 2H. Revenue from New Homes advertising reflects the rise in developments from 867 in January to 1,512 in July and 1,673 now. With 7 of the top 10 developers listing on OnTheMarket, we expect 2H revenue to double in 2H to £1m and continue growing strongly next year.

With lower 1H overheads and marketing, we trim our full year estimates for overheads and marketing by £0.2m and £0.8m (i.e. 2H marketing: £5.0m). In line with guidance, we raise our forecast adj PBT from a £0.5m loss to breakeven.

Valuation: OnTheMarket has c. £10.3m (14.3p per share) of net cash, a capital light business model, long-term contracted revenues and an ability to manage its costs to conserve cash.

OnTheMarket, at 94.5p, is trading on 3.2x historic and 3.4x current year price/revenue. Excluding net cash OTMP’s price/revenue multiples fall to 2.7x and 2.9x. Stocks on price/revenue of 3.0x, with 25% operating margin, trade on PER of 15x.