If you took a step on the property ladder last year there is a good chance that you were a customer of local authority property search provider PSG Solutions, currently making a splash in a market that was previously sewn up by local authorities.

Since emerging back in 1997 as a faster and more reliable search provider than the local authorities, PSG has expanded to 86 franchisees in England and Wales. Bombed-out investment group London & Boston (L&B) bought the business from founder Julie Hester (who still owns 20 per cent and has joined the board) in 2004. A year later, Jonathan Mervis – a South African veteran of investment group Slater Walker – took over as chief executive, with the backing of serial investors Bob Morton and Vincent Tchenguiz (who between them took up a quarter of a recent £4 million placing). Not long after this, the old board stepped down, the finance director was replaced, Shore Capital was installed as adviser and broker, and in early 2006 L&B turned into PSG.

Mervis has added new management and has steadily increased efficiency at PSG, deriving ever more from its franchisees and gaining greater market share. A new IT system is being rolled out to all franchisees, he adds, ‘so we can control what products they sell – the database that we build up of all these properties will then become very valuable in itself’.

During the year to March 2006, the number of searches PSG conducted grew by 20 per cent to 280,000 – accounting for roughly a quarter of the market. More recent interim figures revealed 28 per cent growth in turnover to £7 million and an impressive 62 per cent surge in pre-tax profits to £1.5 million.

But, as interesting as the core business is, PSG has become an attractive play on the impending introduction of home information packs (HIPs). From June it will be illegal to put your home on the market in England and Wales without providing the documentation needed for the packs – title deeds, energy performance certificate, local searches, and drainage and water searches – much of which PSG already provides. Estate agents will provide much of the HIP content, to which PSG could supply the data. ‘We will make more money on HIPs, but the great test is how many of our searches we will convert,’ notes Mervis.

In a drive to turn PSG into a branded ‘one-stop shop’ in the home purchase field, Mervis is eyeing complementary acquisitions and aims to corner new niches. PSG’s fast-growing insurance arm has developed products specifically to take a greater share of each HIP and Mervis intends to launch insurance cover against ‘property blight’, where valuation suffers through the arrival of ‘noisy neighbours, bypasses, sewage farms and the like.’

Property searches account for the bulk of group revenues, with the remainder derived from a brace of unrelated legacy subsidiaries. Audiotel is a surveillance hardware business bearing no relation to the core business, but, says Mervis: ‘It has turned around this year and will provide a nice little profit – the next stage is to see if we can get good growth and then either demerge or sell it off.’ Specialist packaging outfit Moore & Buckle is similarly unrelated but ‘gives us over £350,000 cash flow a year’, so there’s no rush to sell it. Finally, among £1 million or so of other ‘minority investments’, Mervis recently sold off PSG’s shareholding in AIM-listed Netcentric, now TomCo, ‘which was in our books for nothing’.

Analysts are confident that PSG will prove a ‘major’ beneficiary of HIPs and Mervis says he is ‘confident of exceeding’ the house broker’s forecast of £2.9 million of profit and 7.6p of earnings for the year to 31 March.

Going forward, estimates rise strongly to £3.7 million and 9.7p – and bear in mind that the impact of HIPs is as yet unknown. Backed by canny investors, PSG looks a tasty value treat, trading on forward multiples of less than ten times.

PSG Solutions	AIM	£4.6m	18.00p	0.00p
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HIPs creaking already			29/05/2007
PSG shakes its HIPs appeal			28/03/2007
PSG in profits search			23/08/2006
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