Sunday share tips: OnTheMarket, Hunting

In her ‘Inside the City’ column for the Sunday Times, Sabah Meddings was focussed this week on upstart online property portal OnTheMarket, and its hastening plans to reach profitability.

The company - owned by estate agents, and listed on AIM since last year - claimed earlier this month that the number of phone and email leads delivered had grown sevenfold in the last 12 months.

Its growth had stemmed from its strategy to offer free listings to estate agents as an introductory offer, in a bid to entice them to switch from rivals such as Rightmove and Zoopla.

The firm had now indicated it was in a position to begin converting new clients into fee-payers, bringing some recurring revenue in with them.

Economic uncertainty around Brexit has hit the property sector hard, with traditional estate agents facing the reality of both being undercut by online operators, and needing to work with other online operators to ensure their listings get eyeballs.

The big player in the online listings market is FTSE 100-listed Rightmove, whose shares have risen more than tenfold since listing in 2006.

Rightmove and Zoopla have for some time enjoyed a duopoly in the online listings game, a number of analysts have recently suggested OnTheMarket could be giving the sector veterans a “run for their money”.

Launched by estate agents in 2015, OnTheMarket differentiated itself by offering lower fees as well as its free introductory listings, and had already succeeded in forcing Rightmove to slash its fees list.

Chief executive Ian Springett has been vocally critical of the big boys, claiming that some agents were paying more to Rightmove than they were to their landlords for office space, and also alleging that the number of leads generated by Rightmove for every £100 spent had fallen to 18.1 from 27.9 in 2015.

OnTheMarket is aiming to set its listing fees at around 25% of Rightmove’s monthly charges, but its strategy has thus far failed to entirely convince investors.

Its shares reached a peak of 176p last June, but then fell to a low of 82.5p on 25 January.

They have recovered somewhat in recent weeks after the company won a ruling against estate agent Gascoigne Halman, which claimed OnTheMarket’s policy of forcing agents to choose between either Rightmove or Zoopla for their additional listing was anti-competitive.

They then rose further earlier in February, after Springett announced the firm now had 12,500 agency branches listing on its platform.

It also said it would use an allocation of 36 million shares to entice agents to sign long-term deals to list with OnTheMarket.

“The shares closed on Friday at 106.5p, valuing OnTheMarket at £65.7m,” Sabah Meddings noted.

“It made sales of £7m in the six months to the end of July, losing £5.7m.

“If it can prove it can turn a profit, there should be value ahead. Buy.”

Over in the Mail on Sunday, Joanne Hart was honed in on the oil sector for her ‘Midas’ column - specifically, oil services firm Hunting, describing chief executive Jim Johnson as an “oil man, through and through”.

Hunting’s primary business is specialist tools and components used in well construction, with its stock falling from a high of more than 800p last summer to 579p now due to concerns around oil prices and the energy sector, and the global economic outlook as a whole.

But that fall, Hart claimed, had been “overdone”, adding that she thought Hunting should bounce back.

She wrote that Johnson - who has been with the company for 27 years so far - was a long-term thinker, knowing the oil market as a cyclical beast, but striving to ensure Hunting was capable of making sustainable returns to shareholders.

Around 70% of Hunting’s earnings are attributable to its ‘Titan’ division, which focuses on shale products, in recent years riding the fracking boom in the United States when shale production took off, and crashing back down when the oil price crash saw the fracking industry retreat.

Oil prices remain lower than they were five years ago, but Hart said the survivors of the shale crash were likely to now be stronger and more mature, moving their focus from that of expansion at any cost to a more traditional focus on products with solid economics.

And fortunately for Hunting, they still needed the right tools to do the job, with the firm releasing products that allow exploration and production firms to drill more efficiently and cost-effectively than previously.

Johnson had warned about the industry’s 2019 outlook in December, but recently, Hart said sentiment had been better than expected, with activity in the sector gradually expanding.

Interest in fracking was expanding beyond the United States, too, with operators looking into projects in places such as Argentina and Saudi Arabia.

And the company was keen to ensure its strengths beyond Titan remained strong, with it lining up to supply the slow emergence of new offshore projects globally.

Hunting was also likely to benefit from both the growth of emerging markets, and the natural equipment replacement cycle in the coming years.

The company is set to release results later this month, with analysts picking an uptick in profits to $100m, from $11m in 2017.

Hunting did resume dividend payments in 2018, with a 12 cent distribution forecast for the year, rising to 17 cents for 2019.

“The oil market is cyclical and few participants can escape the highs and lows,” Hart wrote.

“But Hunting shares have fallen too far too fast and they are now undervalued.

“Johnson has also undertaken several self-help measures that should boost resilience in the future. Buy.”