Belvoir Group PLC yesterday issued a trading update ahead of publishing its half year results in September

Group revenue during the six months to 30 June 2023 increased by 3% on 2022 with revenue growth in both its property franchise and financial services adviser networks, despite more challenging market conditions in H1 2023.

The Group is outperforming the market across all three of its revenue streams; lettings, sales and financial services. Consequently, the Board confirmed that the Group is trading comfortably in line with management’s expectations for the year ending December 2023.

Property Division

In Management Service Fees (“MSF”), the core underlying revenue from the property franchise networks were up 4% on 2022. Property sales activity was down 9% but a strong letting performane, up 8%, mitigated the reduction.

Total revenue from the property division was 4% lower, having successfully franchised out two corporate-owned Nicholas Humphreys offices in September 2022 and March 2023 respectively, in line with the Group’s franchise business model. The reduction in revenue from converting sales commission to management service fees was offset by a comparable proportionate reduction in operating costs associated with these two corporate offices.

Taking into account the 2022 acquisition of the Mr and Mrs Clarke network and the franchising out of the two Nicholas Humphreys offices, lettings MSF in the underlying business was up 6%, ahead of the UK rental index in June 2023 of 5.1%.

Underlying sales MSF was 12% lower which compared favourably with a reduction of 15% in the number of UK housing transactions completed in H1 2023.

Financial Services

Financial services revenue was up 11% with the performance stronger than forecast at the start of 2023. The acquired financial services businesses in 2022 and 2023 accounted for 18% revenue growth. Revenue from the underlying financial services business was 7% lower against a reduction of 26% in UK gross new mortgage lending in H1 2023.

The increase in the base rate has slowed demand for new purchase mortgages but also stimulated demand for remortgages and product transfers from clients seeking specialist advice on securing the best available mortgage terms.

In H1 2023, the total number of mortgages written by Group advisers increased by 11% to 10,252 (H1 2022: 9,639) and the ratio of purchase mortgages to remortgages/product transfers was 47:53 (H1 2022: 61:39) with advisers able to service demand from Belvoir’s extensive client bank.

M&A and Balance Sheet strength

Belvoir has continued to pursue its acquisition growth strategy having completed the acquisition of a financial services business comprising 21 advisers for a consideration of £1.1m on 6 June 2023. The Group’s financial services network now totals 301 (FY 2022: 284) mortgage advisers. The pipeline of future acquisition opportunities remains strong.

The Group continues to achieve a high rate of cash conversion and maintains a strong balance sheet with net cash of £0.4m (H1 2022: net debt of 2.5m) having settled deferred consideration of £1.0m relating to a 2022 acquisition and consideration of £1.1m on completion of the recent financial services acquisition out of cash reserves. Having repaid all outstanding bank loans in March 2023, the Group retains an unused £2.0m overdraft facility with HSBC.

Dorian Gonsalves, CEO of Belvoir Group, commented:

“Our tried-and-tested franchise business model, the diversity of our income streams, the recurring nature of our lettings revenue and our successful acquisition strategy, both at franchisee and corporate level, have enabled the Group to meet and overcome the challenges currently facing the property sector.

“Our franchisees derive 80% (H1 2022: 78%) of their income from recurring lettings fees and have benefitted from increasing rents. This has more than offset the impact of a reduction in UK housing transactions in H1 2023. Meanwhile, our financial services advisers have been able to meet client demand for remortgages and product transfers in the face of increasing mortgage rates and this has mitigated the reduction in new purchase mortgages.

“The high degree of uncertainty created in the property and mortgage markets following the mini budget in September 2022 and subsequent interest rate rises, resulted in a drop-off in mortgage applications and house sales instructions towards the end of 2022 and made it very difficult to forecast the impact of increasing bank base rates on these markets in 2023.

“However, the outperformance of our business model continues to reflect the entrepreneurial nature of our franchisees and self-employed financial services advisers, who remain entirely focused on maximising the opportunities presented in all market conditions.”