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 2018s 10.8m.
Deadly duopoly
That hasnt hurt the OnTheMarket share price, quite the reverse. Perhaps thats because the loss is due to the estate agency-backed groups plan to invest heavily in its business as it looks to wrestle power, revenues and eyeballs from the Rightmove and Zoopla duopoly.
The companys 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. Thats 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 summers fund raising and a lower-than-planned cash burn.
Group revenues climbed to 14.2m, although thats a rise of just 4.4% over the year. The companyhas now signed listing agreements with more than 12,500 estate and letting agents. However, most of them are free trials, with only 1,000 branches currently signing paying contracts, equivalent to 8% of its customer base. 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 record25.4m 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. Todays 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 thats 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 thats resolved, you wouldnt buy a UK-focused companies for years.
Rock bottom rates
Help to Buy doesnt worry me either. Theres 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 dont let that put you off.
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