Belvoir, which yesterday announced its intention to float on AIM within the next month, is now embarked on a busy series of roadshows to entice investors to support what will be the only publicly listed lettings company.
Between 20 and 40 roadshows are to be held, from London to Edinburgh.
The firm hopes to raise between £6m and £8m, of which £3m would immediately go into expansion.
A key attraction to investors – who could include the firm’s own franchisees – is the plan to deliver regular and ‘significant’ dividends.
Belvoir intends to expand its current network of 142 franchised branches to 200. However, with 361 territories still free, eventual growth could be far greater. The existing franchisees manage over 20,000 properties between them.
Founder Mike Goddard, who remains at the forefront as chairman, said: “We believe that there is a lot of scope for growth in the private rented sector. There are between 15,000 and 16,000 agents doing lettings at the moment, so there is huge potential for some consolidation.”
Acquisitions by Belvoir, or its franchisees, are not ruled out, and some of the money raised will go to helping existing successful franchisees expand.
Goddard added: “Two reasons for wanting to float are to grow our market share – which we currently believe is about 1.5% – and enhance the already high reputation of Belvoir.”
The firm, which says its plans to float are already well advanced, has been reporting big profits. In 2009, it reported £865,000 after tax, while in 2010, profits after tax rose to £1.024m. That figure was almost certainly overtaken again last year, with the firm reporting profits after tax of £955,000 for the first nine months.
The firm’s expansion plans will target those parts of the UK where Belvoir branches are relatively few and far between. The 361 free territories available to new franchisees include Wales, Scotland, the North-East and the West Country, with 60 free territories in London alone.
Dorian Gonsalves, managing director who was previously with Countrywide, said that more growth is predicted in the lettings industry.
Asked if there was concern that historically, lettings is seen to be counter-cyclical to sales, he said: “That cycle seems to have changed. One reason is that the stigma associated with lettings has disappeared.”
The firm charges franchisees a set-up fee of £22,500 for a five-year licence, insisting on a compulsory three-week training course, and then takes 12% of each franchisee’s monthly turnover as an ongoing management fee.
Currently, Belvoir’s biggest like-for-like rival is Martin & Co, which is also a stand-alone lettings franchised chain. Martin & Co has more branches, and a year ago – but based on only four weeks of trading – Vizzihome estimated that Martin & Co had 4.61% market share.
It said its nearest rival was Foxtons with 2.54%, followed by Belvoir with 1.85% and Northwood with 0.78%.
The Vizzihome report did, however, say that Countrywide had more rental property listings than Martin & Co – 3,721 and 3,542 respectively – whilst Belvoir had 2,088.
If successful, Belvoir will join Winkworth on AIM, the latter having successfully expanded since its own float.
There are rumours that Countrywide will seek to return to the main stock market some time this year.
Comments
Does anyone know roughly how many properties a new Belvoir branch would need to let every month in order to break even and how long it usually takes to reach this point? It must take a long time without any fees from sales.
Hi SFL
As I said elswhere I don't understand these things and maybe my sums are wrong but I was taking an extrapolated gross profit of £2.4M and expressing surprise that the net after tax profit would end up at £1.2M or 50% which is where that figure came from.
I'm amazed they would only end up with a 50% profit after tax especially given what you say elsewhere about the smoke and mirror available to the self employed and companies to be creative in maximising what they keep.
There is a lot of sense in Mark's observastions. My only one wouild be to hope that both Belvoir and M&Co are spouting honest CURRENTLY TRADING branch numbers at 140 and 180 or whatever they claim as a few years ago this was certainly not the case and mothballed etc offices were included in office numbers claims.
Othersie of course any attempt for whatever reason to try and calculate an average properties per branch ration is distorted and meaningless.
Simple as that.
I should say that I used to work at Martin & Co, but my observations are as follows:
Belvoir seem to have been starving thewir business of investment over the past few years to maximize profits (now I can see why).
They have been stuck on about 140 offices for years now, so their plan to get to 200 and intimate that there could be a lot more is a bit optimistic.
It is unlikely that anyone in the industry will go much above 20 offices because the workable territories start to get too small to justify the office overhead. I think that is why Martin & Co have launched the online franchise, which is a good way to optimiize the smaller areas.
Belvoir will use £ 3 million for expansion. - That's fine, but they should have been investing much more over the last few years, particulalry in web technology, where they are way behind the curve.
The big winner out of this plan is actually Richard Martin. He has been investing heavily in Martin & Co, their website is much better, they have more offices, they are recruiting online agents, have a cleaner brand, and are also looking to acquire businesses.
When the day comes that he wants to cash in his chips, Belvoir will have set a benchmark, and as a much better business, he could sell for a much higher price.
If I was a potential investor, I would bypass Belvoir and wait for an opportunity to invest in a much better business.
As Industry Observer now knows, I'm Martin & Co so I can't speak for Belvoir. However, I'm a bit lost as to why Industry Observer thinks Belvoir should make substantially more than 50% profit based on his (probably quite accurate) guesstimates.
Our own Head Office pump a lot of the money they receive from our monthly fees into supporting us and developing the brand and presumably Belvoir do the same.
As one of Martin & Co's larger franchisees I pay fees to our Head Office which are a long way into four figure territory every month. Industry Observer will probably be staggered to hear that I actually think I get pretty good value for money.
Hello Steve from Leicester I knew you'd be the first or only other contributor!!
Here's a conundrum for you.
Belvoir claims to manage over 20,000 properties, let's assume 20,000 for easy figures. An efficient agent should take on average £1000 a year from a fully managed property as fee income. So that means £20M fees earned by Belvoir franchisees.
At 12% royalty fee - and I understand both Belvoir and Martin & Co are tough on renewal fees and don't negotiate discounts with any franchisees, is that right?
That means £2.4M income to Belvoir. So why is net profit after tax only 50% of this on a projected figure for this year. Is Belvoir really paying that much tax?
On the agent numbers ask Mike Goddard where he gets his figurte from and tell us. I queried this sort of thing with ARLA several months ago and they thought 12,000 was the upper end of any guesstimate but they really idn't know. Neither does anyone else.
To answer Industry Observers (perhaps rhetorical) question, not many of those 16,000 will be specialist letting agents.
I'm assuming they're counting everyone who offers some sort of lettings service, including specialist letting agents, one-man bands, estate agents with a lettings department etc. On that basis 16,000 sounds like a reasonable guesstimate to me.
What is interesting here is the guesstimate of how many letting agents there are in the UK. Figures quoted over the years have generally ranged between 10000 and 12000 but I have never seen 16000 quoted.
It is impossible to quantify of course, and one wonders how many of the "16000" are actually specialist like Belvoir.
At least now and ready for the market they are quoting true profit figures as a Franchisor as opposed to a few years ago when they marketed franchises on the basis of Belvoir having a turnover of £4+ million which of course was the sum total of the turnover of all their offices.
A franchisor's turnover, in the case of Belvoir for exampole, is simply the sum of their 12% royalty fees, of course.