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Investing.com -- LSL Property Services (LON:LSL) on Wednesday reported a £14.8 million underlying operating profit for the first half of 2025, up 3% from a year earlier.
Separately, Jefferies issued a “buy” rating on the stock with a price target that implies more than 30% upside.
The company’s guidance for full-year 2025 underlying operating profit remains unchanged at £33 million, in line with market consensus.
“Transformed to a capital light model in the past 2 years, LSL now makes a ROCE of >30%, while still offering significant operational leverage to a recovery in housing transactions in the UK,” the brokerage said.
Net cash at June stood at £22 million, down from £32.3 million at year-end 2024, reflecting a £7.4 million working capital outflow that followed a £5.9 million inflow in the second half of 2024.
Cash conversion was 50% in the first half compared with 114% in the prior half. The group invested £1.1 million in loans to franchisees for lettings and returned £3 million of a £7 million buyback during the period.
Operating margin was 16.5%, 40 basis points lower year on year. Reported profit included £1.8 million in exceptional costs, including £0.6 million for financial services restructuring, £0.7 million for central restructuring and £0.5 million for costs linked to the administration of TenetLime seller.
Surveying and valuation revenue increased 9%, supported by stamp duty changes, though margins fell 410 basis points from the prior year due to surveyor incentives normalising from unusually low levels in 2024. Compared with the second half of 2024, margins rose 270 basis points.
Financial services revenue was flat. Adviser numbers dropped 7% as the group moved away from protection-only business, while completions per adviser increased 8% and fee per completion rose 3%.
Operating profit was unchanged. The repositioning away from protection-only had a £1.6 million negative impact, partly offset by a £0.8 million gain from the Pivotal Growth joint venture.
Pivotal reported a £0.5 million profit in the first half after completing two more acquisitions, taking its total to 19.
Estate agency revenue and operating profit rose 1%. Branch numbers and the lettings portfolio each grew 1%, while income per branch climbed 22%.
Residential sales rose 24%, offset by lower land and new homes revenue after the loss of a contract.
Jefferies forecast more than 15% operating profit growth for 2025 and said earnings remain tied to U.K. housing transactions.
“We calculate that a 10% upside in mortgage approvals from our current +5% assumption in 2026 can offer >15% upside to our group EBIT estimates,” it said.
The shift to a franchise model has halved capital employed and reduced capex and working capital requirements, according to Jefferies.
Free cash flow is forecast at 13% to 16% of sales. Net cash is projected to reach £26.7 million at year-end 2025 and rise to more than £70 million, excluding proceeds from a possible Pivotal Growth sale.
Jefferies set a price target of 381p, based on 11 times 2026 price-to-earnings for the core business plus the value of Pivotal Growth at a 10 times EV/EBITDA multiple.
It added, “valuing on a DCF suggests a price target of >500p, with potential for a step up in capital returns to catalyse the recognition of this value.”