AIM-listed OnTheMarket (LSE: OTMP) is up more than 6% today despite publishing an operating loss of £14.5m in its final results, more than a third higher than 2018’s £10.8m.
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.