Belvoir Group (LSE: BLV) is one of those rare AIM groups that appears to offer both growth and income potential. The property company which listed on AIM in 2012 claims to be the UK’s largest property franchise group, delivering residential lettings and sales, and property-related financial services through 372 individual businesses nationwide.
It’s share price has had a great 12 months, rising over 70%. That doesn’t mean though that the shares couldn’t rise further. It just makes the shares more expensive than they were. Which is not a problem if you think the underlying business has strong growth potential and the shares could rerate upwards; indeed a number of bigger, more highly valued AIM shares trade on even higher valuations and yet their share prices are rising.
Even after this big share price increase, the shares are still yielding over 4% – far more than most AIM shares. I think this is a positive sign about the profitability of the company and its intention to reward shareholders.
As it’s a growth stock the PEG is a good ratio to be able to calculate. For Belvoir based on a P/E of 14 and an earnings growth rate of 45% leads to a PEG of around 0.3. This could indicate the shares are undervalued and well-positioned for growth.
A history of acquisitions
Belvoir has a history of making acquisitions to broaden its offering. To date it looks like these purchases have added significant value and there’s little reason management won’t continue adding companies – especially to help with growth in financial services and won’t be able to successfully integrate these acquisitions.
This is a quick overview of the five acquisitions made to date:
- July 2015, Acquisition of Newton Fallowell Limited (“Newton Fallowell”), one of the largest estate agents in the East Midlands
- Oct 2015, Acquisition of Goodchilds Estate Agents and Lettings Limited (“Goodchilds”), consisting of lettings and estate agency branches located across the West Midlands
- June 2016, Acquisition of Northwood GB Limited (“Northwood”), the largest remaining independent UK property franchise network at that time
- July 2017, Acquisition of Brook Financial Services Limited (“Brook”), providing mortgage, insurance and other financial services through 36 financial advisers
- Nov 2018, Acquisition of MAB (Gloucester) Limited (“MAB Glos”), a network of 64 businesses providing mortgage, insurance and other financial services
The acquisition of MAB cost £3.6m and the acquisition was paid for in cash by drawing down on debt facilities. In the 12 months to August 31, MAB Gloucester generated a revenue of £3,870,000 and profit before tax of £575,000.
Speaking about the acquisition, Dorian Gonsalves, chief executive officer at Belvoir, said: “We are delighted to announce the acquisition of MAB Glos, whose network of 63 business partners will entirely complement our existing network of 300 property franchisees, both in terms of the management infrastructure and the cross-selling opportunities, creating a total of 364 offices, including Brook, operating under the Belvoir Group. We believe that the acquisition of MAB Glos will provide the basis for developing a network of financial advisers to support our franchisees at a local level, in addition to the existing mortgage advice services delivered centrally by Brook.”
The acquisition of Northwood for £22m shows that Belvoir is not scared of doing being deals in order to grow – but obviously that comes with risk. Principally integration and financial risks. Most of the other acquisitions have been much smaller, for example its first deal for Newton Fallowell was for £3.68m.
Jan trading update
For the financial year ended 31 December 2019, revenue increased 43% to £19.5m (2018: £13.7m). At the time the Board said it expected that the performance for the year, including profit before tax, would be comfortably ahead of management’s expectations.
The Group’s diversification into financial services delivered significant revenue growth of 148% in 2019 following the acquisition of MAB (Gloucester) in November 2018, and a 35% increase in the Group’s financial services network. Belvoir now has 166 (2018: 123) financial advisers offering specialist high street mortgage advice both to our Group franchisees and to independent agents.
Dorian Gonsalves, CEO of Belvoir commented: “2019 was another very strong year for the Group and is testament to the resilience of the Belvoir franchise business model with our franchisees achieving growth in a year when they were expected to lose 10% of their lettings revenue from 1 June, and yet by Q4 2019 franchise network revenue was noticeably higher than it was in Q4 2018.
We could not be more delighted by our strategy to invest in financial services in 2017. At that time our number of advisers was just 13 servicing 20 of our Newton Fallowell offices, and now we have 166 financial advisers across the UK, all operating under the Mortgage Advice Bureau brand. Financial Services has been, and continues to be, a considerable success for Belvoir.
The recent acquisition of Lovelle extends our franchise network and, as primarily a sales-focused estate agency, offers the opportunity to increase revenue streams from both lettings and financial services.
The Board remains committed to its growth strategy of capitalising on further consolidation within the property sector and through diversification into other property-related services. With January 2020 signalling a marked improvement in both sales and mortgage transaction numbers, I am optimistic about the growth opportunities for Belvoir in the year ahead.”
Sept interim results
The trading update followed on from a similarly positive and upbeat set of interim results in September. At that time the group reported a 48% increase in Group revenue to £9,047,000 (H1 2018: £6,123,000) and an 18% increase in gross profit to £6,198,000 (H1 2018: £5,242,000).
There was a 5% increase in Management Service Fees (MSF) to £4,201,000 (H1 2018: £4,015,000) and the Financial Services division revenue was up significantly to £3,969,000 (H1 2018: £1,311,000) benefitting from November 2018 acquisition of MAB.
Operationally the company underwent significant positive change with 16 franchisee assisted acquisitions completed in the year up to that point, comprising £4,194,000 of acquired franchisee turnover.
Gross profit split of 66% lettings: 15% sales: 19% financial services (H1 2018: 74%:17%:9%) reflects continued lettings bias and growing investment in financial services. The number of managed properties increased 6% to 64,650 (H1 2018: 61,100)
Historical results
Looking over a longer timeframe, the group appears to be on an upward trajectory and getting better year after year – which in an AIM company in particular – is important to see.
- Revenue 2014 £6.5m and 2018 £13.7m
- Profit before tax (PBT) 2014 £1.8m and 2018 £5.5m
- Operating profit 2014 £1.6m and 2018 £4.5m
- Earnings per shares (EPS) 2014 5.6p and 2018 12.5p
The growth here shows that Belvoir is expanding well with EPS, profit before tax, operating profit and revenue all more than doubling over the period.
Management team
For me, there are three black marks against the management team. One is that in early 2019, Eric Walker has left his role as managing director of Belvoir, only seven months after being appointed. The second is that in May 2019, Mike Goddard stepped down as Chairman, that’s significant because he was a founder of the company, so his leaving is a big step for the company and a big loss of entrepreneurialism. He had only stepped down as CEO back in 2017. So it’s quite a rapid withdrawal from any day to day involvement with the running of the business.
The current management team comprises a chairman who has taken over from the founder and a CEO and CFO that are both established in their roles.
Chairman, Michael Stoop spent 22 years as managing director of Legal and General’s estate agency network, Xperience, which he was instrumental in converting into a wholly franchised network of 95 offices. In 2014, this was sold to The Property Franchise Group plc, where Michael was group managing director until he stood down in 2016.
Chief Executive, Dorian Gonsalves spent seven years with Countrywide before joining Belvoir in 2005 as Business Development Manager and being appointed Sales Director a year later. He was previously a director of The Property Ombudsman.
Chief Financial Officer, Louise George was appointed June 2014. She has been involved with five significant acquisitions for the Group and is also the Company Secretary to the Group.
They are supported by one non-executive director (NED) and one exec director. The NED joined in June 2018 and is an accountant. The exec director, Mark Newton, established Newton Fallowell, which he built into a network of 30 franchised offices before selling to Belvoir in July 2015. At Belvoir, he is responsible for the diversification into financial services.
In terms of shareholdings of management – which I think is important amongst AIM companies because they are usually small enough management should have substantial holdings – Belvoir is a bit weak. So for me this is the third black mark against the management.
The founder has been selling off shares which isn’t a confidence builder, or a great signal for a private investor. Between 2017 and 2018 he sold just over one million shares. It was reported in September 2019 that Mike Goddard was planning to sell a further £2m worth of shares.
The CEO bought no shares between the end of 2017 and the end of 2018 – the latest figures available in an annual report. His total holding is 463,595 shares. Yet he was paid £302,000 in 2018 – an increase of 17.5% on the previous year.
I’d like to see more confidence from the directors in the business and a greater alignment between their interests and those of shareholders. They need to have more ‘skin in the game’.
Reasons why Belvoir makes for a potentially great AIM investment
- High yielding for an AIM-listed company
- Franchisor based business model
- Expansion into financial services
- Strategic acquisitions are boosting growth
- Share price momentum
- A low PEG
What could be better
- The shareholdings of management
- Growth in the sales part of the business
- Not having lost the expertise of the founder
- More non-executive directors to hold the management to account and provide advice
Overall to answer the question about whether Belvoir is a great AIM investment or not, I’d conclude that Belvoir is a good company, but probably not the most obvious high-quality, high potential investment on the AIM. I personally prefer the look of Judges Scientific, Alpha FX and Spectra Systems.
The Income Investor 
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