AIMprospector
Lettings franchisor is growing up fast MartinCo is a lettings and estate agency operating from nearly 300 offices around the UK. The company’s shares have traded on AIM since December 2013. MartinCo has grown both organically and through acquisition. The company possesses many of the characteristics of a smallcap investment that are most desired: it is established, successful, dividend paying and produces dependable cashflows. Funds raised at the 2013 IPO were used to purchase Legal & General’s property franchise business ‘Xperience’ just over a year later. This added four new franchised brands to the existing Martin & Co business. This acquisition is key to understanding MartinCo’s growth over the last two years.
the fourth largest property group in the UK Like Martin & Co, Xperience ran a franchised model. Xperience differed however, in having a more even 50:50 split in revenues between sales and lettings. The acquisition of Xperience increased the Group’s total managed portfolio by around one third. MartinCo is now the fourth largest property group (as measured by office count) in the UK. The MartinCo business benefits from some powerful trends. Net migration to the UK brings many working age people to the country
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every year. The ageing UK population delays the release of family homes onto the market. This reduces the supply of homes for sale, pushing up prices and increasing demand for rental property. Divorce rates have led to an increase in the number of households being formed and a decrease in the average number of people per household. The result is that in the last twenty years, the proportion of homes being rented in the UK has doubled. A franchised lettings business is ideally placed to profit from this. Letting produces a longstanding and dependable income stream. Under the model that MartinCo runs, most of the business risk lies with the landlords and franchisees. Landlords must foot the bill for maintenance and repairs, while franchisees bear the fixed cost of staff.
a longstanding and dependable income stream
The risk to MartinCo comes from competition and a market downturn, which would see agency fees decline and voids (lack of tenancy) increase. Recent experience and the trends outlined above, show how unlikely the second scenario is.
increased the skew toward sales The Group boasts a sound balance sheet. Current assets of £4.7m at the half-year stage comprised £3.8m of cash. Total liabilities amounted to £0.5m less than the current asset figure. MartinCo is not bulletproof however. The Xperience acquisition increased the skew toward sales, a notoriously more volatile market. Nevertheless, the revenue mix at the Group is still overwhelmingly derived from lettings, with sales accounting for only around 20%. The Group has a progressive dividend policy, with a huge 38% increase announced at the half-year stage. Management is targeting growing the business to 400/500 offices. MartinCo (LON:MCO) FOR Dependable cashflows Supportive demographics AGAINST Interest rate risk Possible EU out vote Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high
£44m 193p:198p 19.7 2.8% 85p:200p
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