OnTheMarket 'not profitable until 2021, but share price could rise 35%'

One of the brokers working with OnTheMarket says the portal will not be profitable until 2021, but predicts that its target share price is 35 per cent above its current rate.

Yesterday we reported that OTM’s figures for the six months to the end of July revealed a falling ARPA - average revenue per agent - from £194 a year ago to £153 now, and an operating loss of £5.7m, twice that of a year before.

However, the portal has signed up an additional 5,600 branches since going public and has spent substantial sums on new sales and IT staff, as well as advertising.

Now Stockdale Securities, one of OTM’s brokers, has issued a report forecasting that the portal will not become profitable until 2021 “but should see rapid profit growth towards the end of our forecast period, full year 2022.”

It says performance may then be constrained thereafter “reflecting a degree of attrition among high street agents.” Stockdale also says that in terms of market comparators, there is only one - Rightmove.

In its detailed eight page analysis, sent to investors, Stockdale says “a key strategy for converting introductory trials to paying membership is boosting web traffic to the site from house hunters, offering valuable leads to branches” and suggests this is why yesterday’s trading statement from OTM says increasing emphasis will be put on the ‘new and exclusive’ feature to draw in consumers.

In a section titled ‘Key issues on which investors must take a view’ the broker says:  “A key issue is the speed of … revenue growth, which depends on the success of its marketing drive and attracting agents to subscribe. Some of these agents will be incentivised by further new shares. Importantly, in our view, OTM has dropped its requirement for new member agents, or those entering new contracts, to use only OTM and no more than one other portal. We believe the strength of the housing market, which we expect to hold steady in terms of volumes, will have only a modest impact. More important, in our view, is the relative financial strength of agents.”

Later in the document, in the ‘Risks’ section, it says: “Agents’ spending power is an issue, since fees have been cut in much of the industry due to competition, however we believe this could support OTM’s lower-priced approach.”

Stockdale says key performance indicators such as branch numbers, sales team size, advertising and IT infrastructure appear on course, and the portal should begin to be profitable in 2020.

OTM’s share price has dipped over the past month - and fell five per cent yesterday morning on the release of the portal company’s trading statement - but Stockdale says it “conservatively” values shares at 186p – “a 35 per cent upside”.