Shares: LSL to ride housing upturn
Wed 07 Aug 2013
Property services group set to benefit from improving market
A network enhancing spending spree puts LSL Property Services (LSL) in a prime position to ride the recovery in the UK housing market.
The estate agency, which has more than 500 branches taking in brands including Reed Rains, Marsh & Parsons and Intercounty, maybe trading on a rating, but has momentum on its side.
Against the backcloth of improving mortgage availability, Governmnet support in the form of Help-to-Buy mortgage-guarantee scheme and a house price recovery, LSL's sales and lettings business and its brokerage and surveying operations should perform well.
Bears may point to the elevated rating, with the counter now trading on a prospective price / earnings ratio of 14.7 based on 2014's projected earnings per share (EPS) of 29.2p. but as Rightmove (RMV) has and is likely to continue to demonstrate, rich valuations can keep rising on positive short-term newsflow (see Plays, page 10). Management expects to see a rise in transaction volumes in the second half and is also looking to continue expanding its network through further selective aquisitions. It has the funds to do it. LSL generated 32.6 million of cash last year, up 34% year-on-year, and management has stated that the business remains highly cash generative.
While the firm does carry debt, with net borrowings of 31.7 million, it managed to refinance 75 millionof its bank obliagtions earlier in the year (20 Jun) as part of a 100 million four-year deal.