Shares in The Property Franchise Group soared yesterday after it reported that it expects the full effects of the tenant fees ban to be mitigated six months early.

Tenant fees had previously represented 16% of franchisees’ lettings revenue in England and Wales.

The group had expected the loss not to be mitigated until the end of next year, but now says that full mitigation will be attained by next June after putting up its fees to landlords by 10%.

The group, whose brands include Martin & Co, EweMove, CJ Hole, Ellis & Co, Parkers and Whitegates, said that in October its franchisees achieved a new record for lettings income of £5.96m.

In an unscheduled trading update, TPFG said: “It is largely thanks to mitigating actions encouraged by the group as a franchisor that its franchisees have managed to alleviate the impact of the tenant fee ban, alongside some pent-up tenant demand feeding through.

“This is a clear demonstration of the benefits of the franchise business model.

“Growth in management commission (the recurring monthly fees which our franchisees charge landlords for property management services) has increased 10% year on year from £3.88m in October 2018 to £4.28m in October 2019.

“The group believes it is the high level of satisfaction of its landlord clients that lies behind its better than expected progress in shifting the burden of cost from tenants to landlords, as clients of its franchisees would rather retain their services than do it themselves or instruct another agent.

“We had previously advised investors that it could take until the end of 2020 to fully mitigate the lost revenue from the ban, however management is now confident that the objective of full mitigation will be attained by June 2020, one year after the introduction of the ban.”

CEO Ian Wilson, who is due to retire at the end of next year, said: “We are delighted that the mitigating actions we’ve recommended to our franchisees have taken effect as hoped and at a good pace.

“We now expect to achieve full mitigation of the impact of the tenant fee ban a full six months earlier than originally hoped.

“Our ability to draw on our wealth of industry experience and act quickly to support our franchisee members provides us with a clear advantage in the market.

“At a challenging time for the industry, where many independent lettings agencies are considering leaving the sector, our group continues to show its strength.

“The sales market has softened further in the second half, however our lettings business is out-performing our budgeted expectations.

“Our franchise business model has proven to be remarkably resilient in these testing conditions and we expect this to continue.”

Yesterday, shares in TPFG went up more than 10% to finish at about 169p.

Its shares have already been picked out in Investors Chronicle for their performance as a high-yielding small-cap investment, although the article may be behind a pay wall:

https://www.investorschronicle.co.uk/tips-ideas/2019/11/19/three-high-yield-small-caps/