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'A dog with fleas': City analysts sceptical about OnTheMarket float

There has been a sceptical reception from City analysts to Agents’ Mutual’s decision to restructure and float on the stock market - and one newspaper commentator has likened the idea to “a dog with fleas.”

Credit Suisse, in a note to investors, says the £50m which the portal company wishes to raise by floating would “certainly make the site competitive for at least a couple of years and as such increases the likelihood that it could offer a competitive proposition in the medium to longer term.”

It says that £50m - if directed into marketing - would be the equivalent of around two years’ marketing spend currently undertaken by ZPG.

However, the rest of Credit Suisse’s assessment makes discouraging reading for Agents’ Mutual. 

The bank says: “We believe such a plan would likely struggle. We are unsure as to whether it will obtain the required member approval to demutualise. Should they be successful and remove the One Other Portal clause we believe that this would be meaningfully positive for ZPG's near term financials.”

It explains its pessimism over whether members will back the idea because “our understanding is that the group needs 90 per cent approval from members in order to do this ... We see this as the first major hurdle OTM needs to pass.”

Credit Suisse also says an Initial Public Offering of shares could highlight OTM’s weakness, because with only 2,700 firms on site representing 5,700 branches, this is well below ZPG’s 14,271 and Rightmove’s 17,589. “We also note that OTM has traditionally excluded online agents from the site, the fastest growing segment of the agency market, this exclusion will mean OTM could never offer whole of market.”

It summarises by saying: “As such we believe that OTM's consumer proposition is lacklustre from both an inventory standpoint and also with regards data (or lack thereof). This lack of scale and lack of a consumer USP has led the group to deliver limited traffic to its site - the group has consistently had around 10 per cent of ZPG's traffic.”

Meanwhile, Anthony Codling, analyst at Jefferies consultancy, asks: “Will agents back a game keeper turning poacher?” in what he calls “one heck of a change in strategy.’

Codling believes the dropping of the one other portal rule, should it happen, would benefit ZPG as there would be no reason why agents would not return there once the threat of breaching contract was removed.

He also raises a query already extensively debated on social media by agents concerned at the proposal - the fact that the already-rich high-end agents who founded Agents' Mutual would be likely to benefit most from a float. “When it comes to finance it appears that the one member one vote does not lead to one member one share. Ordinary shares will be issued to members 'reflecting, amongst other factors, the aggregate amount of fees they have paid in order to list on OTM since its launch in January 2015'” he says.

The analyst is also sceptical of the requirement for member agents to commit to a five year contract. “We understand why OTM is asking for this commitment, but given its propensity to take its own members to court for breach of contract, we are sure that some agents will be wary of committing to five years of additional ... spend, especially as [accountancy firm] Moore Stephens reported this week that it believes that 19 per cent of estate agents exhibit warning signs that they are at risk of going insolvent.”

And that ‘dog with fleas’ comment?

That comes from financial correspondent Russell Lynch in the London Evening Standard. 

In his critique of the Agents’ Mutual proposal, he asks why someone would buy shares “in something that lagged a distant third behind two competitors and had never made any money?”

He describes the OTM proposals as “unappetising” and asks investors why they would not instead prefer to put money into “the divi-paying, profitable market leader (Rightmove) or diversified divi-paying rival (Zoopla).”

Then he concludes his analysis with the words: “This float looks like a dog with fleas.”

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