HMLH 9 Sept 2014. Price 33p, market cap £12m Prospective p/e 10.3x
HML Holdings is a property management company. They are not a property owner or developer. They do not collect rents or act as rental agents. Their niche is the collection of service charges for blocks of flats and then the use and management of those monies. This will include maintenance, surveying, security and probably insurance. They are NOT freeholders and are therefore not responsible for structural maintenance. They provide these services to over 2000 blocks across the UK with c45,000 flats/apartments in total. Compared to the rents ( £000s per annum obviously) their average take is £300 per flat, a tiny amount and a small percentage of the service charge.
85% of HMLH’s turnover is in property management, as described above ( £12.4m). They are frequently able to add high-margin added-value services, arranging insurance ( £1.5m, reported 72% margin), surveying, security etc ( other services £0.8m). The management is very low margin ( 8% gross ) but add-on services make the money. HMLH agree a fee for each block and this will vary as a % on the size of each block and whether they have competition. It is still a small percent.
Property management of this nature is completely unregulated. Frequently the freeholder will take the service charges and have an immediate conflict of interest: are they acting for themselves or for their tenants/leaseholders ? Anyone can provide property management services: many blocks are run by “the accountant round the corner” or a local entrepreneur. There are no barriers to entry and HMLH say they have less than 1% of the market. HMLH claim that they offer a better, more professional, transparent service and can offer services that others cannot ( insurance etc). To reiterate the point about no regulation, the CEO stated that they hold over £40m of client money. This is not HMLH money but the gross value of the service charges held. It is not reflected in the accounts in any way.
They state no concerns over regulation in residential leaseholds. They believe this will affect landlord managers, who are conflicted, but will not affect the independent management of blocks. They believe their size and professionalism would win them business if the market was regulated. They are heavily involved in the main trade body The Association of Residential Managing Agents…

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