LSL Property Services (LSE:LSL)

[rishig]

LSL Property Services, a UK based real estate property services company, is one of the dominant players in the UK housing services industry. It operates in two segments: Estate Agency and Surveying Division. Estate agency provides services related to home sales and letting (UK term for renting), real estate asset management (repossessions of homes in default) and mortgage lending (broker) services. The Surveying division provides survey valuation services to lending corporations.

 

UK housing has not yet recovered and the recent fall in the LSL stock is due to the cloudy outlook in the near term. There may be more pain ahead but for value investors like us with a longer horizon there is lot to like.  Number of home transactions in England and Wales is currently at multi-decade lows (https://docs.google.com/spreadsheets/d/1DaLt9fC5NioTDKbiKjKVYRmW7dX8F3JU2wfxmQ1JRJc/edit#gid=889797503).

 

As housing recovers over the next 3-4 years, EPS will grow at double digit rates thanks to high operating leverage in the estate agency division. The operating leverage is already evident as some housing recovery occurred in the last 5 years. I can easily see this as a 2x in the next 3-4 years. Even if nothing good happens, LSL has the staying power. It has negligible debt and at these prices you are paying 10x P/E. See spreadsheet for the numbers.

 

FPA International and Oakmark Small cap International (David Herro) have a large position in LSL at much higher prices.