Deadly duopoly

That hasn’t hurt the OnTheMarket share price, quite the reverse. Perhaps that’s because the loss is due to the estate agency-backed group’s plan to invest heavily in its business as it looks to wrestle power, revenues and eyeballs from the Rightmove and Zoopla duopoly.

The company’s administrative expenses almost tripled, from £9.7m to £27.8m, as it hired new marketing staff, while advertising expenditure jumped from £2.2m to £14.9m. That’s in line with its growth strategy, and management said the marketing spend was “more efficient than originally envisaged.”

On target

OnTheMarket boasted a solid cash balance of £15.7m on 31 January, up from £3.2m, helped by last summer’s fund raising and a “lower-than-planned cash burn.”

Group revenues climbed to £14.2m, although that’s a rise of just 4.4% over the year. The company has now signed listing agreements with more than 12,500 estate and letting agents. Of these, 5,500 were paying fees at the IPO in February 2018. The remaining 7,000 are on free or discounted rolling one-year deals with the option to pay at expiry. So far, 1,000 have done so. The average spend is £337 a month, but it remains to be seen whether its growth strategy will find long-term traction.

Traffic up

OnTheMarket stock is down 35% over the past year but site traffic is growing, with a record 25.4m visits in May, while also generating healthy leads for estate agent customers. The £70m company only listed in February last year and has a long way to go. Today’s results show promise, but it remains relatively high risk. Rupert Hargreaves would buy it, though.

I would rather play safe and buy one of the big FTSE 100 housebuilders such as Barratt Developments (LSE: BDEV) instead. This sector is also risky as Brexit drags interminably on and concerns grow over demand levels when the Help to Buy scheme is restricted to first-time buyers only from April 2021, a date that’s moving inexorably closer.

Investors in Barratt have shrugged off these worries with the stock recovering 26% in the last six months, although it has dipped lately as Brexit no-deal fears grow. Personally, I reckon you can only worry so much about political events such as Brexit. If you wait until that’s resolved, you wouldn’t buy a UK-focused companies for years.

Rock bottom rates

Help to Buy doesn’t worry me either. There’s a growing number of attractive mortgage deals at 90% and 95% that buyers can turn to when this scheme expires. Property remains in short supply and demand is voracious. Mortgage rates are at all-time lows and the chances of a base rate hike are now vanishingly thin, especially with the Fed looking to cut. All this should prop up the market.

Barratt is valued at a bargain 8.6 times forward earnings, roughly half the FTSE 100 average, and yields a forecast 8% with cover of 1.5. Earnings growth looks steady. People still need homes. Neil Woodford bought it, but don’t let that put you off.

The post This AIM stock is flying today but I’d rather buy this FTSE 100 stock yielding 8% appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

People were seeing the shares rising rapidly and, not wanting to miss out, piling in without really understanding the company’s valuation.

That, in turn, was pushing the share price up further, and it can carry on like that for some time. But common sense eventually sets in, the fad passes, and the share price descends towards a rational long-term valuation.

Price slide

Since I voiced my fears that it was happening to Purplebricks, the shares have fallen a further 27%. So how do you avoid jumping on, and falling off, bandwagons? I’d start by ignoring the marketing hype.

I don’t want to see big ad campaigns like the Purplebricks one. I want to see where a company’s profit is going to come from. And I want to have some way of relating the share price to that profit.

Competition

The property business is a very competitive one, and every company in it is getting paid one way or another, through commissions, fees, whatever. And I don’t see the “no commission” angle as a game-changer at all — folks selling their homes are going to weigh up the total costs of the alternatives.

Purplebricks is investing huge sums in an attempt at rapid international expansion, but a lot of investors are increasingly seeing it as too far, too fast, before it’s even come close to profitability in its home market.

While Purplebricks is certainly at the sharp end of the online estate agent business, it’s still tiny compared to the traditional market. And first movers are rarely the ones who reap the big profits.

Young upstart

Newcomer OnTheMarket (LSE: OTMP) has had a fiery start to life as a listed company, with its shares gyrating between 102p and 185p since flotation in June. As I write, we’re looking at a price of 141p, for an overall loss of 5%.

On Tuesday, the AIM-listed property portal announced a new deal with Belvoir Lettings. Belvoir is described as “the UK’s largest property franchise” and is set to list all of its residential sales and rental properties at OnTheMarket.com.

The tie-up will extend to shared marketing too, with Belvoir also set to “actively promote the portal brand with digital and branch-based marketing activity.” I don’t know much about marketing, but that sounds more cost effective to me than paying big money for people to shove their faces in cakes on primetime TV.

Both CEOs were, naturally, saying really nice things about each other’s companies, but I do see it as a pretty good move for both.

Would I buy OnTheMarket shares myself? Right now, no. But that’s simply because there are no profits on the horizon yet.

Profit watch

At the interim stage there was £24.3m in cash on the books, but forecasts suggest a pre-tax loss of £26.4m for this year and next, combined. I think OnTheMarket could do very well, but while there’s a likelihood of more funding being needed, I have no way of working out a fair valuation for the shares. I’m watching.

The post Here’s a property stock I reckon could smash the Purplebricks share price appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As a result, the company could deliver better total returns than the wider index. Of course, it’s not the only stock that could do so, with one small-cap stock reporting positive results on Thursday.

Financial outlook

While the UK banking sector continues to face challenges such as a slowing rate of economic growth and continued regulatory issues such as PPI, its prospects appear to be improving. For example, the decade-long period of loose monetary policy now seems to be at an end, with interest rate rises expected to increase in frequency over the next few years. This could create more profitable trading conditions for the industry, and may lead to improving financial performance.

With RBS putting in place what seems to be an improving business model that focuses on efficiency and its core operations, its financial outlook is due to improve. Next year it’s forecast to post a rise in earnings of 11%, which suggests that its strategy is starting to pay off. And with it trading on a price-to-earnings growth (PEG) ratio of 1, it could be viewed as undervalued on a relative and absolute basis.

Income potential

One measure of the value appeal and financial strength of a business is its dividend prospects. A fast-rising dividend can indicate that a company’s management is positive about its long-term prospects, while a high yield suggests a margin of safety may be on offer.

In both of these areas, RBS seems to have appeal. It’s due to raise dividends per share by 82% next year, which puts it on a forward yield of 4.7%. And with shareholder payouts expected to be covered 2.1 times in 2019, there seems to be scope for an even higher dividend over the medium term. As such, the company appears to offer a mix of value and income appeal, and could therefore deliver outperformance of the FTSE 100 over the medium term.

Growth potential

Also offering scope to beat the Footsie at the present time is OnTheMarket (LSE: OTMP). It operates the online property portal of the same name and released generally positive results on Thursday. They’re its first set of full year results following its listing in February.

Encouragingly, traffic to its website increased from 21.9m in the 2017 financial year to 42.2m visits in 2018. As at 25 May, the company had signed listing agreements with UK estate and letting agents that together have more than 8,500 offices, which is a rise of 54% since its admission to the stock market.

Clearly, OnTheMarket faces a significant amount of competition. The industry is dominated by a very small number of companies, and breaking their grip on it could prove challenging. As a result, its risks appear to be high.

But with what seems to be a sound strategy and positive growth in listings and traffic numbers, its long-term potential seems to be positive. Therefore, now could be a good time to buy it.

The post Why the RBS share price looks set to surge higher than the Footsie this year appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Royal Bank of Scotland Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Sudden Impax

Impax was further boosted by reported total net client inflows of more than £1bn, predominantly from clients in continental Europe and North America. First-half revenues almost doubled from £13.9m to £25.7m, with profits before tax up from £2.4m to £5.5m. Adjusted earnings per share jumped from 1.94p to 4.83p, a rise of 248%. This allowed Impax management to hike its interim dividend 57% to 1.1p per share. It is also paying a special dividend of 2.6p due to the “outstanding performance” of its second private equity infrastructure fund.

The group hopes to benefit from the shift to a more sustainable global economy but must also deliver a robust investment performance, and has fared reasonably well. Its thematic environmental and resource efficiency strategies outperformed their sector benchmarks while slightly lagging the MSCI All Country World Index, and its global equity strategy outperformed.

Sustainable yield

Investors are happy and City analysts are forecasting 67% earnings per share (EPS) growth for the full year to 30 September, followed by 9% the year after. This fund management minnow, which has a market cap of £242m, also offers a forecast yield of 2.5%, with cover of 2.9.

My colleague Rupert Hargreaves reckons that if you buy today, you will be getting 4.8% by 2021. Its current forecast valuation of 16.5 times earnings does not seem excessive, especially if current momentum proves sustainable.

Pass the portal

Nine out 10 homebuyers start their search online but traditional estate agents have mixed feelings. They set up their own rival in January 2015, OnTheMarket.com (LSE: OTMP), to challenge the Rightmove and Zoopla “duopoly” and fight back against rising portal charges. The AIM-listed enterprise is now the third-largest portal in terms of traffic, and is giving itself a competitive edge by offering “new and exclusive” property listings.

Market mover

The group described this as a “transformative year” and this is an early stage business that is still trying to find its footing. Group revenue fell from £17.8m to £16m, with an operating loss of £10.8m (up from £1.2m in 2017), which includes £14.7m of exceptional items. Shareholders took a £12.1m hit after tax.

Cash reserves did increase over the year to £3.2m but establishing itself is proving costly. The £98m company’s stock is down 1.23% on these results and I would urge caution. Rightmove is still the undisputed number one in this sector.

The post Why I’d consider buying this small cap monster growth stock today appeared first on The Twelfth Magpie.

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harveyj has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.