Good morning!

Thanks for your suggestions.

Let's take a look at:



Onthemarket (LON:OTMP)

  • Share price: 81.75p (-2%)
  • No. of shares: 64 million
  • Market cap: £52 million

Interim Results

Please note that I own shares in Rightmove (LON:RMV), so I'm not exactly disinterested when it comes to the success or failure of Onthemarket.

This update show good growth in the number of branches listed (up 28% in the year) and excellent growth in traffic, with a 75% increase in the number of site visits.

I also note that its stock of available property has improved, and its stock is now c. 64% of Rightmove's.

It generated far fewer leads per property advertised than Rightmove, but it claims that if you adjust for how much more expensive Rightmove is, that it offers twice as much value (i.e. leads per pound spent).

The rate it uses for this calculation is £331/month, which is the rate at which long-term contracts are offered to agents, for 3 or 5 years.

It also offers short-term, low-cost contracts at just £203/month.

The bit where I have a big problem is that the revenue under long-term contracts of £331/month comes at a price in terms of share issuance.

The business model is to outcompete Rightmove (which itself was founded by estate agents) by regularly giving "free" shares to estate agents, to get them on board.

That's great for the estate agents, but this regular dilution says to me that it's unlikely to be a high-grade investment.

Indeed, the need to dilute shareholders risks creating a self-fulfilling prophecy, whereby a low market cap (c. £50 million) means that ever greater numbers of shares are needed to incentivise agents to sign up, only serving to make the dilution worse.

OTM recently reported that agents weren't committing to long-term contracts at the rate expected, implying that the existing offer of free shares wasn't enough to get agents on board. Hence, the introduction of short-term, cheaper contracts.

Analysis

During H1, 1308 branches signed up for long-term contracts, receiving 1.8 million shares in return. That's about 1,400 shares per branch, with value of £1,100 (at 82p each).

That's about 3…

Unlock the rest of this Article in 15 seconds

or Unlock with your email