Winkworth

Estate agent franchisor Winkworth (WINK) has declared a 28% rise in profits for the year to December as wealthy Middle Eastern customers boosted a buoyant Central London market.

The AIM-quoted group reported profits of £1.1m (2010: £900,000) on sales up 9.5% to £3.7m, with transactions (sales of houses in estate agent parlance) up 22%. The London-headquartered group focuses on 'prime Central London' property in areas such as St Johns Wood, Notting Hill, Knightsbridge and Mayfair, but also declared that it had acquired four offices in the Bournemouth area from a business that branded itself as 'Mitchells'.

In an interview with Growth Company Investor CEO Dominic Agace noted there had been a 'big uplift' of late from Middle Eastern customers 'due to the uncertainty in the region' adding that 'over seventy per cent of buyers in Central London were international.' One area of growth for the company of the period was its 'country house' division which specialises in the sale of large country homes to high net worth individuals looking for a country mansion.

Looking forward Agace wanted to grow the business further in the South West and South East in 'locations that affiliate with London' identifying a target of eight new Winkworth offices a year and between 3-4 office networks through acquisitions.

Following the results analysts at house broker finnCap held their forecasts. The broker is pencilling in £100,000 growth in pre-tax profits to £1.2 million on turnover up £300,000 to £4 million for the year to December 2011, with a 0.5p increase in EPS to 7.5p expected. Furthermore a dividend per share of 4.5p is also forecast for 2011, a yield of 5.2 per cent on the current price.

Rising interest rates, cuts to the public sector and a lack of buyers are also factors likely to take a knock on the wider residential property sector, which could well see substantial falls in value in the coming years. However Central London properties operate under a different sort of fundamentals, with a steady stream of very wealthy individuals both internatonally and from The City meaning that prices in desirable areas of London are unlikely to experience much pressure in the coming years, with a variety of wealthy Middle Eastern, African and Russian customers in particular always keen to have a London property available should political instability at home force an exit and with such family homes always in short supply.

As a result Winkworth's focus on the Central London market, together with a respectable dividend yield give it much stronger prospects than the general estate agent market as a whole. However we do not think growth in the coming years will be stratospheric and we therefore rate the shares as hold, though as a long-term investment the generous yield could be a suitable bonus for dividend-hunting investors.