Share Price plummets after agency group’s profits warning

The share price of LSL Property Services dropped around 16 per cent at one point yesterday following a profits warning given in a gloomy half-year trading statement.

LSL has told shareholders that it’s made “significant strategic progress” to simplify the group - earlier this year the owner of the Reeds Rains and Your Move agency brands announced it was moving to franchise its network of 183 branches in a bid to become less reliant on that side of the business and to concentrate more on surveying and mortgage-based financial services. 

However, it says that results in its first half were impacted by significant changes in the housing market, with underlying operating profit falling to £3.5m compared to £14.2m for the first half of 2022.

Its mortgage side has been resilient, but nonetheless damaged by successive interest rate rises and fewer transactions.

This week it’s reported that in the first half of 2023, against the same six-month period in 2022, Purchase lending reduced by 27 per cent.

It takes some comfort by saying that this was slightly less than the overall market reduction of 30 per cent.

Remortgage lending by LSL decreased by 15 per cent, compared to the market which fell by 21 per cent.

Product Transfer business increased by 48 per cent allowing LSL to comfort its shareholders by saying that total LSL mortgage lending advice declined just four per cent over the half year.

However, it warns: “Whilst this change in the nature and volume of mortgage lending was largely included in our expectations for H1, the most recent trading following the June interest rate rise indicates that this shift has increased further and we now expect these conditions to persist in H2, with a resulting impact on margins and full year profit.”

In its outlook for the coming second half of 2023 LSL tells shareholders: “The mortgage lending market in H2 remains highly uncertain, resulting in a wider range of possible outcomes for the Group than usual. 

“We now expect that there will be lower levels of Purchase and Remortgaging activity than previously forecast for the second half of the year, with this only partly offset by increased lower margin Product Transfers …Full year Group profits will now be substantially lower than previously expected.”

Group chief executive David Stewart says: “LSL made a lot of progress over the past six months, delivering important strategic projects. Market conditions have been challenging, and more recently have become more difficult, impacting this year’s financial performance.

“The more challenging market conditions in the short-term will not prevent us from continuing to take the required steps to deliver on the identified opportunities for future growth. Our strong balance sheet allows us to take a long-term view and we will continue to invest to deliver our financial services network growth strategy and retain the capacity required to enable our surveying business to meet the future demands of our clients.

“Our financial services network and surveying businesses have established leading market positions and have performed strongly in recent years and will perform more strongly when the market recovers. Notwithstanding the near-term challenges the board remains confident about the group’s medium-term prospects.”