HUNT.L Regulatory News (HUNT)

02 July 2015

Hunters Property PLC

("Hunters" or "the Group")

Admission to trading on AIM

Hunters, one of the largest national sales and lettings estate agency businesses, is pleased to announce that dealings in its shares on AIM will commence today at 60 pence per share. Numis Securities is Nominated Adviser and Broker to the Company.

The Group has traded under the Hunters brand since inception in 1992 and as at 31 May 2015, had 151 branches of which 140 were franchised branches, with the remaining 11 branches being owned by the Group.

Admission details:

Commenting on the Company's admission, Kevin Hollinrake, Chairman said:

"Today marks an exciting moment for Hunters as it seeks to capitalise on its recent success to become the UK's leading estate agency brand. By joining AIM we open up a new route to capital to support our ambitions and enhance our offering to existing and new franchisees. I would like to thank everybody who has been part of Hunters' success story to date."

Ends

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Notes to Editors:

Overview of Hunters Group

§ Having started in 1992 with just one wholly-owned branch, the Group first grew organically, by opening owned branches, and consisted of 10 branches by the end of 2005. From 2006, when the Group first began expanding via franchising, the Group has grown to 151 branches as at 31 May 2015. 

§ The Directors believe that the Group's expertise in both sales and lettings makes its business model more robust than that of pure sales or lettings focused competitors. 

§ Whilst the lettings business provides the Group with a recurring revenue stream, the sales business provides exposure to higher gross margin sales commissions. The combination of the two income streams reduces cyclicality in the revenues of both the Franchisees and the Group, providing a more stable business. 

The growth strategy

§ The Group's growth strategy is to continue to increase its market share in the UK estate agency market by growing its network of franchised branches, and to continue to develop and refine its proposition to Franchisees. 

§ Its objective is to become the largest estate agency brand in the UK market in 3 years. 

§ To achieve these objectives, the Group expects to grow both organically and by acquisition, which includes:

o Acquisitions of small estate agency franchise chains, of 5-20 branches focused in reasonably small geographic areas, in which they have built a local reputation, which will be integrated into the Hunters network. The Group's strategy is to target those chains focused on areas of the UK in which its presence is less established.

o Significant strategic acquisitions of competitors - the Directors intend to look to acquire one medium to large estate agency franchise, of ideally 20 to 200 franchisees in each of the first two years following Admission and every 2 or 3 years thereafter. 

§ The Group's in-house franchise sales team targets the conversion of existing independent estate agencies and small wholly-owned estate agency networks into new Hunters Franchisees. The Group's target is to add at least 20 new branches (either independent estate agencies or small independent estate agency networks) to the franchise network each year. 

Proven franchise business model

§ Since 2006, the Group's strategy has been to grow a predominantly franchise network. From Hunters' perspective, expansion via growth of its franchise network requires minimal start-up capital; in most cases, the start-up costs of a new branch are borne by the Franchisee. This reduces the capital risk of expansion to Hunters, allows the business to grow quickly without committing significant capital, and minimises the size of the management team needed to oversee a large national network of estate agency branches. 

§ The vast majority of revenue that the Group receives from Franchisees is generated via the Management Services Fee. Most are calculated at a standard 8 per cent. of the Franchisee's revenue, charged on a monthly basis. Franchisees also contribute 2 per cent. of their monthly revenue to the central marketing fund. 

§ The Directors believe that the franchise model provides a competitive advantage compared to own branch competitors as it is more scalable and requires lower capital investment. 

§ The franchise model allows individual Franchisees to benefit from brand recognition, centralised support services and economies of scale as if they were an owned branch of a much larger agency. These include purchasing economies of scale which the Group achieves, in particular centrally negotiated rates for portals such as Rightmove and Zoopla.

§ Franchisees benefit from the marketing and national advertising resource provided by the Group and the central marketing fund.

The property market

§ The UK is predominantly a country of home-ownership. Since the second half of 2012, there has been an increased volume of residential property transactions indicating returning consumer confidence and the impact of Government initiatives such as Help-to-Buy. 

§ The growth of the private rented sector has been a defining feature of the housing market since the early 2000s. From housing 10 per cent. of households in 2000, it has grown to house 19 per cent. of households according to the latest English Housing Survey (published by the Department for Communities and Local Government). The rental market has also played an important role in absorbing much of the pressure on the supply-constrained housing market. 

§ The Directors believe that the strengthening UK economic recovery and the lack of affordable housing will continue to underpin demand for rental property.

Competitor landscape

§ The UK estate agency market is highly fragmented. The Directors estimate that there are approximately 25,000 estate agent branches in the UK, of which around 11,500 undertake lettings activities. The Directors estimate there are over 8,000 brands operating within the UK.

§ Online estate agents have challenged the traditional estate agency model but the movement in market share to online has been minimal to date and the Directors believe that online is unlikely to gain significant traction as currently offered in the foreseeable future.

Advisers to the Admission process