The Agency Group Australia (ASX.AU1) Presentation, FNN Online Investor Event, December 2020

Company Presentations

The Agency Group Australia Limited (ASX:AU1) Managing Director Paul Niardone provides an overview of the company, discussing FY20 and Q1 FY21 results, its long-term $11m funding package, its strategic partnership with Managex and the investment proposition.

Thank you Clive, and thank you to Shaw and Partners for the opportunity. Okay, if we can bring the presentation up and go to the first page, I'll go through some of the highlights of our firm.

Okay, so we've only been around for four years and in that time we've created a national footprint in Australia. We're run by a leading management team. It's all very well to say we've got a disruptive model, but a model looks good on paper, you actually need the team and the people to implement it, and we've done that and we've got a fantastic team. In the four years, as I said, we've spent a lot and invested in the platform that we created and in expansion, but we've still managed to really now become cashflow positive, EBITDA positive, and have got a strong asset balance sheet.

We are a full service model, which was what was talked about. So we go for everything from sales to management, to finance, to conveyance, and now we're starting insurances and financial planning. We also are the only company or real estate firm in Australia to have two brands. We recognised that you can't have a premium brand and try to go into all segments of the market, so we have two models and two brands to allow us to get as much market share as possible.

And lastly, I think the industry is up for disruption. It's been the same since the late 1960s, and it's been dominated by the franchise model. We effectively corporatized that model, if you like. We've taken away that franchisor strip, and rebalanced the commission that was earning, both down to the agents and up to the head co. Just on financial highlights, we finished at $2.66 million last year, and you can see that was up from a $4.25 million loss. So a pretty good turning around. Again, in four years we've achieved revenues of nearly $42 million. We've sold nearly $3 billion worth of properties, which is quite an achievement. And we've got about $27 million worth of assets. And when you look at what we're capped at the moment, we're capped at probably around $15 million.

Okay, next slide please.

Again, just to give you a bit more detail in the different divisions, we've got the property sales, we've got the property management. In property sales our two major models are the agency, which obviously is the main one, and SLP which is our sister brand for the more, I guess, out of metro areas. Ancillary services, our mortgage business, we've got a billion dollar loan book, and it's predominantly here in WA at the moment, but we're expanding all these services out to the East coast. We've got a strong conveyance department, and as I mentioned we're spreading into financial planning.

Again, one of the difference we have from the traditional model is we have got a cloud-based system. Our agents can work from anywhere. They can work from home, they can work from the coffee shop. Everything's at hand via their laptop. And because of that, we've got centralised hubs. We're not having offices on every corner, like a franchise model. We don't need that. So all the support and admin is centralised in the head offices. What this has allowed us to do is to provide our agents a higher level of service than any other firm can provide, because we share that cost through the whole number of agents that we've got.

Next slide.

Okay. Just to show you the spread, the business started in WA in 2017. We've now got 140 agents in WA. Twice we've been REIWA's number one office. We now have 8% of the market share in WA. Ray White is the market leader with 10%, and they've probably been around for a good 50 plus years. So we haven't done a bad job in four years, to come up to 8%. In Sydney, Matt Lahood leads the team on the East coast. He's very well respected in the industry, very well known. And again, in a short period of time, he's recruited 122 agents. He's really attacked the premium suburbs in both New South Wales and Victoria. We're number one in the Lower North Shore and the Eastern suburbs, and we've just opened up offices in Hawthorne and Albert Park in Victoria.

Next slide, please.

Okay. Just to highlight our financials over the four years that we've been around. You can see from these graphs we've had consistent growth year-on-year. In terms of revenue, 48% year-on-year, gross commission 26% year-on-year. So it's really been a good growth story. And the figures are very strong coming up into this financial year at the moment. Our recruitment are strong. We've also being very careful in our recruitment. We don't recruit anyone. We have minimum levels set in each state. And if an agent doesn't fit into those levels then we don't recruit them. So we're not out there trying to recruit anyone with a heartbeat. We want proven people, professional people, that can run their own business. It probably goes to the core of our model. We always see ourselves as really a partner to the agents, and for us the difference between us and other real estate models, I guess, is that our agents are our clients. Not the vendor, the vendor is the agent's clients. As our business, our agents are our clients.

Next slide please.

Okay. So again, just to show you coming out of COVID, and the September quarter, we had a record breaking quarter for the quarter of September. You can see that our combined revenue was up 49%. You see the periods that COVID hit us. It sort of straddled that March/June quarter in all the graphs. But coming out of it we've been quite strong. GCI is up 52%, number of listings was up almost 25%, and sales were up 40%. So both in numbers and in value of sales. So we've got great sales reps. We're increasing the number of sales reps, but our sales reps are also becoming much more productive. And we believe that's because of the platform we're offering them and the assistance we're offering them.

So again, our thinking is to let them do what they do best, list and sell, and we've tried to take away all the admin functions. And even now we're working on most of the marketing functions. Again, to allow them to focus on what they do best. So one of the key learnings we got out in the last few months was trying to turn a real estate agent into a social media expert doesn't work. So instead of sending them to training and getting speakers in, what we've decided to do now is to centralise that function in head office, and we will provide it for them. So again, this makes them much more productive, it takes another thing off their plate, and allows them to focus on what they do best.

Next slide, please.

In this slide I just want to quickly touch what we've done in terms of our long-term funding. So we were in a six month rolling funding, which the market didn't really appreciate and like, and we've now changed, are looking at changing that with the current deals that we've got with Macquarie Bank. We've introduced Bob Peters, who's a well-known entrepreneur in Western Australia. He's come in as a very strong backer to the business, and he's putting in a $5 million convertible note. This has reduced our bank debt from nearly $11 million down to $5 million as well. It's provided us more flexibility. The con note will turn into equity as time goes along. It's now giving us more certainty in terms of the business and the financing going forward, and it's also improved our cash flow.

Next slide please.

Okay. Another initiative that we hit in the last quarter was a strategic partnership with Managex. Managex is a fund that's been put together by John Poynton. I'm sure most of the people on this call know who John Poynton is. He was on the board of the reserve bank, now on the board of the Future Fund. And he's done that with Kim Slater, who's the Managing Director. They put a fund in to buy rent rolls, but they want nothing to do with sales. So in WA we've reached a strategic partnership, where we've sold them our rent roll, they're managing it for us. We used that money to reduce our debt position also. But the important part here is the relationship we've got in referrals.

So where Managex goes and buys other rent rolls, all those sales from the rent rolls comes to our sales teams, or the sales teams with those purchasers come in to the agency, and all our sales people in return refer property managements into the fund. We've decided to do this in Western Australia and see how it works. It's working very well at the moment. They're looking at being very aggressive, and looking at five real estate businesses in the metro area at the moment. It's taken away our need to make any more acquisitions in the space, and it will allow us to grow our sales team and proactively work together. So that's an exciting opportunity for us.

Next slide.

Okay. Just again, to go through to the key management. We've probably got one of the most experienced real estate team in the country. Maria Carlino, the head of our property managers, 20 years in, has worked for a number of large property management groups and agency. Matt Lahood, as I said, very well known, he was the COO in McGrath's, probably has trained more million dollar writers than anyone else in the country. Andrew Jensen was formally the CFO of Ray White, so again, knows the industry inside out. So it's a very good team indeed in the industry.

Next slide please.

So in the last few minutes, our investment proposition. Again, as was said, we're the fastest growing real estate company in the country, there's no questions about that. We have a national presence. We've achieved that in four years. We're led by a leading industry team. We've created a fully serviced firm. We don't just take a clip at the sales, we do property management, we run their loans, we do the conveyance. So we try to leverage as much from each transaction as possible. We've got a unique platform, which is built for scale, so we don't need to spend any more money on it. And now every new person that comes on board effectively adds to our bottom line.

We've proven that we can grow. We've grown in a pretty terrible market. To get that in WA in the last four years was probably the worst four years of the Western Australian real estate market. And on the East coast, as most of you would know, it's been a very choppy ride. Down 10%, up 10%, back down 10%. Now we're looking at a situation where we've got quite a bullish market coming up in the housing industry. It's looking quite strong. Interest rates are helping us at that, and I don't think we're going to see much change in that for a few years. So I think the fact that, as you see, we're undervalued in terms of our asset position, we've got a strong market coming up, and I think there's going to be also a lot of opportunities for M&A coming up as well.

Thank you.


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