• Mark Watson-Mitchell

M Winkworth – another estate agent going cheap

19th July 2021


Winkworth is the leading London franchisor of residential real estate agencies with a pre-eminent position in the mid to upper segments of the sales and lettings markets.


The franchise model allows entrepreneurial real estate professionals to provide the highest standards of service under the banner of a long-established brand name and to benefit from the support and promotion that Winkworth offers.


A quick history

The original business was established in Mayfair in 1835 and was operated by the Winkworth family.


In 1967, the Winkworth business was purchased by Mann & Company, an estate agency business operated by the father of the current Chairman, Simon Agace.


In 1974, the Winkworth business and its three offices (Curzon Street, Knightsbridge and Holland Park), were acquired from Mann & Company by Simon Agace who became sole Director and gained control of the Winkworth business.


Under Simon Agace’s direction, Winkworth grew to eight owned offices by 1980 covering new areas such as St. John’s Wood, Fulham, Battersea and Putney, creating an established identity for Winkworth in Central and West London.


The franchising business model


Having observed the successful growth of the franchise model in the US, Simon Agace saw this as a means of securing talent within a business. In 1981, Simon began converting the eight wholly owned offices to franchises.


The franchise concept was rarely used at this stage by estate agents in the UK.


The concept provided an opportunity for Simon Agace’s senior managers to own their own businesses while allowing Simon Agace to retain their skill and knowledge for the benefit of Winkworth.


The group expanded the network at low cost through organic growth and, in 2001, established the Sheffield franchise, giving the group and brand its first exposure outside London.


It now has a network of over 86 offices run by an experienced management team which has been responsible for the development of the Winkworth proposition.


Winkworth Franchising’s business model offers a branded platform to estate agents from which to access the group’s comprehensive range of support services: compliance, marketing, public relations, training and administration services.


It also offers additional products such as financial services, auctions, surveying and commercial property sales. Franchisees can benefit from the economies of scale in purchasing that the group enjoys, and national advertising undertaken by Winkworth Franchising relative to smaller independent agencies.


Finding the right person


The business strategy is to attract the right people into the network and, in circumstances where it has the best-placed person, but that person perhaps lacks sufficient funds, incentivise them appropriately.


The group is open to taking an equity position to facilitate bringing that person on board, and to offer them with a route to equity ownership. In return, it expects to generate a return over and above the 8% that it typically achieves through an independent franchise.


The group’s main focus


Franchising, however, remains its main focus and will continue to shape the business and its profits going forward.


When reviewing applications for franchises the group uses a highly selective process to minimise office closures through failure. It ensures that the business plan and funding are appropriate to launch a new franchise, giving new franchisees the greatest chance of success. As a result the group has a very limited number of closures.


Amongst other things, equity ownership has enhanced the group’s practical understanding of property technical initiatives, and, in turn, its successful implementation has helped support neighbouring offices through referrals and reputation.


The company has no current intention to change its strategy of retaining a healthy level of cash for use should opportunities arise, thus avoiding reliance on debt.


The group has a tight equity


Winkworth (LON:WINK) has some 12.7m shares in issue of which Chairman Simon Agace holds 41.77% and Chief Executive Dominic Agace holds another 5.04%, with Lawrence Alkin, another director, holding 3.16%.


Apart from Canaccord Genuity Wealth holding 9.42% of the shares, two other holders worth noting are Dato Bujang Zaidi with 7.89% and Professor Dato Mohd Shukri Ab Yajid with 4.20%.


Broker’s estimates


On Wednesday of last week Shore Capital Markets, broker to the company, raised its earnings and dividend estimates for the current year to end December.


Impressed by the strong performance in the group’s sales in the first half, that are estimated to have enjoyed better gross profit margins, the broker is now looking for revenues to rise from £6.4m last year to £8m this year.


That should see adjusted pre-tax profits increasing from £1.5m to £.1m, worth 13.4p per share in earnings against 9.1p last year.


Accordingly, the broker’s analyst Alastair Stewart has pencilled in a dividend of 8.8p per share (6.7p).


My View


This company is a wonderful play on the residential property sales and letting market in the UK.


At the current 190p the shares have certain upside attractions, despite having risen from just 95p at the end of March this year.


Ahead of the company’s early August Trading Update, I now set a Target Price of 240p,

which would only put them out on just 17.9 times current year earnings.


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