The Agency Group Australia (ASX: AU1) is continuing its strong financial performance within Australia’s growing $8.9 trillion residential real estate market.
Describing itself as one of Australia’s largest vertically integrated real estate services company, The Agency achieved record earnings before interest tax depreciation and amortisation (EBITDA) of $4.75 million in FY2021 – up from $710,000 in FY2020.
Driving this was an almost 40% rise in revenue to $58.38 million for FY2021 – primarily a result of a 68% increase in year-on-year combined gross commission income to $80.7 million.
Across the group, 4,964 sales were achieved for a combined value of $4.8 billion – representing a 57.7% growth in transaction numbers, which was “considerably more” than the 40.7% market increase for the same period.
Executive chairman and chief operating officer Andrew Jensen described FY2021 as a “company making” year.
“We delivered strong operating and financial results despite the COVID-19 pandemic and ongoing restrictions in key real estate markets.”
The Agency says it is “disrupting the real estate sector” by reducing the structural layers and rewarding staff with a “more compelling value proposition”.
It attributes its ongoing success to its “unique business model” that allows its agents to focus on sales.
The company says its agents are “core” to this business model. To ensure it attracts the higher performing agents, the company offers higher commissions and support.
Additionally, because The Agency is vertically integrated, it has other multiple cross-selling opportunities with its suite of real estate services, which comprise property sales, management, mortgage financing and conveyancing – taking a buyer or seller through every step of the chain.
Real estate market
According to The Agency, Australia’s residential property market is worth about $9 trillion and continues to grow.
There are more than 600,680 sales in the country’s market each year for a gross value of around $437 billion.
The country’s outstanding mortgage debt amounts to $2 trillion and there are 10.7 million dwellings.
Using CoreLogic data, and assuming a 1.3% commission rate on total sales, The Agency estimates the gross commission income market is worth about $5.68 billion.
Expanding on success
To take secure a larger slice of this massive market, in the coming quarters, The Agency plans to onboard more agents which it anticipates will directly contribute to its EBIDTA.
This is while maintaining its scalable platform, which has limited capital outlays going forward or increases in corporate overheads.
The Agency said it is also actively pursuing new business channels and evaluating expansions into fresh markets.
As part of this, it is looking at strategic partnerships and joint venture opportunities to drive agent recruitment and subsequent sales revenue.
Cash position and increasing revenue
To strengthen its financial position, The Agency has an $8 million funding package and $25 million worth of assets, which include its rent roll and loan book.
In recognition of its “significantly improved” balance sheet, The Agency’s main lender Macquarie Bank has cut the interest rate for its $5 million debt facility from 4.75% to 3.75%.
The Agency noted its debt and operating costs were shrinking at the same time its EBITDA was rising.
The ongoing growth trajectory continued in the September quarter (Q1 FY2022). During the period, gross commission income hit $24.5 million – up 47.6% on the previous corresponding period and almost 8% higher than Q4 FY2021.
This resulted in group revenue of $16.05 million for Q1 FY2022, which was 18% higher than $13.6 million in Q1 FY2021.
The higher revenue and reduced costs led to The Agency achieving $1.3 million in positive operational cash flow.
The Agency managing director Paul Niardone said he was “delighted” with the company’s Q1 FY2022 performance – hitting fresh records during a sustained period of “severe lockdown restrictions” due to COVID-19 across its east coast market.
“With a strong pipeline of existing listings, a significant increase in sales agents and an easing of COVID-19 restrictions in key eastern states markets, we are anticipating delivering strong results in the coming quarter – a period that normally experiences a seasonal lull leading up to and over the Christmas holiday period.”