TIDMLSL
RNS Number : 5668H
LSL Property Services PLC
25 November 2022
25 November 2022
LSL Property Services plc ("LSL" or "Group")
Trading Update
LSL has today issued a Trading Update covering the ten-month
period up to 31 October 2022.
David Stewart, Chief Executive, commented:
"As reported in our Interim Results, LSL traded strongly in the
first half of the year, with our Surveying & Valuation and
Financial Services businesses achieving record revenues. The Estate
Agency Division retained the substantial market share gains made in
2021, in doing so building a strong sales pipeline as significant
profits were delayed by the continuing slow speed of exchanges
across the market. This meant that the Group entered the second
half of 2022 well placed to deliver a strong H2 profit performance,
ahead of the equivalent period in 2021.
"Since that time, market conditions have been more challenging
than previously expected, with the mortgage and housing markets
being disrupted by political uncertainty and sharply increasing
interest rates. Across the market, this has given rise to a
reduction in mortgage activity and new house sales, and an increase
in fall-throughs of previously agreed sales.
"This challenging background means that there is a wider range
of potential outcomes for the full year than previously
expected.
"I am pleased to confirm that LSL's performance has remained
resilient, and we are confident that Underlying Group Operating
Profit in the second half of 2022 will at least be broadly in line
with the second half of 2021, with the possibility of a stronger
performance depending on the volume of valuation instructions
received from lenders. This includes additional costs incurred due
to discretionary payments to over 2,000 colleagues to help
alleviate the impact of significant increases in living costs.
Around GBP0.6m of these costs will be reflected in 2022, with a
further GBP0.8m to be paid in 2023 to cover the winter months."
Highlights
-- Group revenues for the ten months ended 31 October 2022 were GBP276.1m (2021: GBP275.4m).
-- Financial Services Network revenue increased 9% in smaller mortgage and protection markets.
-- LSL's share of the total UK purchase and re--mortgage market
increased to 10.2%(1) (10 months to 31 October 2021: 9.0%)
reflecting LSL advisers' strong position in the re-mortgage market,
which is expected to support market share during 2023.
-- Record Surveying revenue, up 9% in flat mortgage and re-mortgage approvals market.
-- Surveying income per job for the ten month period was GBP175 (2021: GBP173).
-- Estate Agency revenue was down 6% and Financial Services
Other revenue down 2%, both of which were impacted by materially
smaller purchase and new build markets.
-- In Estate Agency, we maintained our market share of
instructions across the locations we trade and slightly improved
our share of housing transactions on a national level.
-- Lettings income is less affected by housing market cycles and
increased by 2% in a market with a shortage of new
instructions.
-- The Group retains a very strong balance sheet, with net cash
at 31 October 2022 of GBP29.1m (31 October 2021: GBP39.7m). Net
cash at the end of the period is after investment made into
Pivotal, and shares purchased in the Share Buy Back programme. We
expect positive cash inflows in the remaining weeks of the
year.
Market backdrop
-- Since the mini budget presented by the UK Government in
September 2022 there has been a marked slowdown in the market of
purchase related front end sales activity, impacting new sales
agreed in Estate Agency, mortgage applications in Financial
Services and valuation instructions in Surveying.
-- Residential sales fall throughs have trended higher in the
past few weeks, mainly from more recently agreed sales.
-- LSL's residential exchanges in H2 have been in line with our expectations.
-- Whilst capacity issues appear to be slightly easing, as we
anticipated, the speed of conversion of the residential sales
exchange pipeline conversion has remained slow across the market,
principally due to the continuing industry--wide capacity issues in
conveyancing.
-- In the mortgage market, there has been a shift towards
re-mortgaging, a trend that is expected to continue in 2023 as
borrowers seek to minimise their monthly payments. However,
increased interest rates and lender caution has restricted the
number of re-mortgage cases to below previous expectations, with a
greater proportion of product transfers.
-- The initial impact of economic and political uncertainty was
most evident in Surveying & Valuation, as a number of lenders
took time to assess the outlook and reduced their appetite for new
business, which fed through into a reduction in the number of
valuation instructions. The scale of this reduction is expected to
be a relatively short-term feature, as lender instruction levels
normalise in line with overall lending appetite.
Group Performance
Group revenues for the ten months ended 31 October 2022 were
GBP276.1m, in line with the GBP275.4m for the same period in 2021.
At a divisional level, Financial Services was up 3%, Surveying
& Valuation up 9% and Estate Agency down 6%.
Financial Services
Total Financial Services Division revenues for the ten months
ended 31 October 2022 increased by 3% to GBP67.8m over the same
period in 2021.
Financial Services Network revenue grew by 9%, reflecting the
highly resilient nature of the independent broker business model.
This represents a strong performance in the context of smaller
mortgage lending and insurance markets, with the Group's share of
the total purchase and re-mortgage market increasing substantially
from 9.0% to 10.2%. Financial Services Other revenue is largely
generated from estate agency and new build referrals. It reduced by
2% as a result of the smaller purchase market.
Surveying & Valuation Division
Revenues for the ten months ended 31 October 2022 were GBP84.9m,
up 9% compared to the same period last year (GBP78.2m), benefitting
from increasing allocations from existing lenders, securing new
business from other lenders and an increase in direct-to-consumer
revenue. This is a very strong result in the context of a flat
market for mortgage and re-mortgage approvals.
Estate Agency
Revenues for the ten months ended 31 October 2022 were
GBP123.4m, a reduction of 6% on the equivalent period in 2021
(GBP131.6m), reflecting a materially lower residential transaction
market. Residential Exchange Income was down 13% compared to an
overall transaction market back 18%, as LSL maintained the market
share gains made in 2021 in the locations in which we trade, in
doing so, slightly improving our national market share. Lettings
income was up 2%, reflecting higher rents against a marginally
smaller lettings book portfolio reflecting a scarcity of new
instructions.
Outlook
As previously reported, the split of H1:H2 profit in 2022 will
revert to a more typical profile with a skew to H2, after record
housing transactions in H1 2021. The lead-time required to complete
transactions means that for Financial Services and Estate Agency,
the financial impact of the recent turbulent market conditions will
largely be reflected in the first quarter of 2023.
Since valuation instructions are at the beginning of the
transaction cycle, there has been a more immediate impact on our
Surveying business from reduced purchase activity, which has been
exacerbated by some lenders substantially reducing their overall
mortgage offers given the current volatile market conditions. This
volatility is not expected to persist in 2023 as the overall
mortgage market returns to a more normalised profile.
Despite the significant disruption in our markets, we expect H2
profit to at least be broadly in line with H2 2021, with the
possibility of a stronger outturn, which would be dependent on a
number of factors, notably the volume of lender valuation
instructions in the remaining weeks of the year.
Full year profit in both the Financial Services Network and
Surveying & Valuations businesses will be significantly ahead
of the pre-Covid performance achieved in 2019, highlighting the
benefits of the Group's diversification strategy. The overall Group
performance is expected to be below our prior expectations with
full year profit now anticipated to be in a range just above or
just below that reported in 2019, which included a contribution of
GBP1.4m from LMS and TM Group, which were both disposed of during
2021.
Looking ahead, most of the Group's profits are generated by the
Financial Services Network and Surveying & Valuation businesses
which are impacted by the size of the mortgage market, and in the
case of Financial Services, the protection markets, which are
expected to be less volatile than the housing market.
As such, our very early estimates are that the total mortgage
lending market will reduce in 2023, although the market impact of a
smaller purchase market is expected to be considerably offset by
higher levels of refinancing activity.
The housing market is heavily impacted by sentiment and has the
potential to surprise on the upside. However, with the recent
reduction in activity levels and continuing uncertainty over UK
economic conditions, until we have greater clarity on the economic
backdrop, we are cautious on the market outlook for 2023. A
significant reduction in housing transactions would clearly have a
material effect on our Estate Agency residential sales business and
our direct-to consumer financial services business.
We continue to focus on proactive management of our cost base,
to limit the impact of these pressures.
A further update on the 2023 outlook will be provided at the
time of LSL's 2022 Preliminary results.
Notes to trading update
(1. LSL's share of the total UK purchase and re--mortgage
market, excluding product transfers, is quoted as at 30 September
2022)
For further information, please contact:
David Stewart, Group CEO
Adam Castleton, Group CFO
LSL Property Services plc investorrelations@lslps.co.uk
Helen Tarbet
Simon Compton
George Beale
Buchanan 0207 466 5000 LSL@buchanan.uk.com
This announcement contains inside information.
Notes on LSL
LSL is one of the largest providers of services to mortgage
intermediaries and mortgage and protection advice to estate agency
customers, completing around GBP41bn of mortgages in 2021. It
represents around 10% of the total purchase and re-mortgage market
with around 2,900 financial advisers. PRIMIS was named Best Network
by Money Marketing in their 2021 awards and Best Network, 300+
appointed representatives at the 2022 Mortgage Strategy Awards.
LSL is one of the UK's largest providers of surveying and
valuation services, supplying seven out of the ten largest lenders
in the UK, employing around 500 operational surveyors, and
performing over 500,000 valuations and surveys per annum for key
lender clients. It was named Best Surveying Firm at the 2022
Mortgage Finance Gazette Awards and Best Surveyor at the 2022
Equity Release Awards with Mortgage Solutions.
LSL also operates a network of 225 owned and 128 franchised
estate agency branches.
For further information please visit LSL's website:
lslps.co.uk
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END
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