HML manages growth opportunities

Property management specialist HML Holdings joined AIM in 2006 with little fanfare but has been steadily getting on with its business.

It provides a range of property services to the residential property sector, including property management, insurance broking and other ancillary services. The markets in which it operates are massively fragmented, but in 2010/11 it still boosted its units under management by 11 per cent to 30,000.

Market leader Peverel went into administration earlier this year, saddled with a debt mountain of more than £120 million. However, this should provide an opportunity for HML as it seeks to win market share, in a sector with few remaining consolidators.

Experienced chief executive Robert Plumb admits ‘we have been enjoying organic growth, but the acquisition opportunity is still significant’. Earlier this year it picked up the block property business of estate agent Philip A Chapman for just £68,000, which brought a profitable operation with 350 units under management.

Having recently opened new offices in Kent and London’s Docklands, HML now trades from nine sites, including one in Bristol.  The key to the company’s future growth will be its ability to acquire and cross-sell more products and services to its clients.

For example, it already provides insurance broking, building surveying and concierge services, as well as health and safety and even company secretarial duties. As owner managers seek an exit, largely due to retirement, HML can plug their business quickly into its overhead and push sales of new products – thereby hanging on to margin it may be paying away.

Founded in 1988, the surveying division, Shaw & Co, provides a range of services including residential and commercial valuations as well as expert witness. It remains profitable with plenty of scope to build further. The insurance broking arm, Alexander Bonhill, has in-depth knowledge of all relevant property insurers, so providing suitable cover and a very profitable income for HML. Last year it achieved a 13 per cent hike in revenue, as a result of higher client renewals and a strong new business performance.

HML has been working hard to stay still, not least due to the fall in interest rates over the past couple of years. Whereas it used to secure a ‘good six-figure sum’ from holding client money in treasury, this has all but disappeared. Plumb admits ‘we must be one of the few praying for an increase in interest rates’.

Nevertheless, the AIM counter achieved a robust 39 per cent increase in operating profits to £509,000 in the year to March, and continues to win new mandates.

Valued at little more than a third of annual revenues, house broker finnCap argues that it could provide a tasty morsel for a larger player; indeed, an exit price could be one times revenue – or 30p a share. HML is successfully pushing up its operating margins, despite lots of competition. Trading on less than nine times 2012 earnings, the current share price provides an attractive entry point.

Canny institutional investors Unicorn and MD Barnard are holders, and we would be inclined to follow their lead – long-term buy.