Smoove AIM:SMV, the AIM-listed, software company providing data platforms to conveyancers, mortgage brokers and home-movers, gives us a snapshot of the retail property market over the last few months as it publishes its interim results for the six months ended 30th September, 2022 today.
All-in-all the Oxfordshire-based, real estate IT company had a reasonable half-year, increasing revenue by 4% to GBP10.6m compared to GBP10.2m in 1H21. However, margins were down marginally to 38.4% from 40%. The company attributed this to “changes in business mix,” in a statement this morning.
Smoove is still posting a loss, which grew to GBP3m, up from a loss of GBP1.5m in 1H21. The company said this “[reflected] increased investment in eConveyancer and new product areas.” Loss-per-share was also up at 4.6p against 2.4p for the corresponding period the year before.
The company had a positive cash balance of GBP17m, with no debt.
Jesper With-Fogstrup, Smoove’s chief executive had previously said that: “Despite the economic headwinds facing households there is still a reasonable amount of momentum in the housing market.”
This time out, With-Fogstrup said: “We have made significant progress in delivering key aspects of our strategy in the last six months […] the economic climate has made trading conditions difficult, but we have been able to mitigate some of the impacts with our strong position in the remortgage sector. Confidence in our products and services was reinforced as we secured the re-contracting with Lloyds Banking Group for the provision of conveyancing services for a further two years.”
Cutting costs
The company has been cutting costs to help it focus on product development and growth and reported conveyancing instruction for 1H22 was up 40% to 39,839. This ran parallel with a 42% uptick in completed conveyancing instructions to 26,354. The volume of Smoove’s growth over the period was concentrated in lower yielding remortgage cases which saw a 167% increase year-on-year. The big win for the period was re-contracting with Lloyds Banking Group to provide the financial services firm conveyancing services for another two yearsSmoove’s shares opened trading this morning (10th November) at 36.25p, falling to 35p in the first hour of trading. The shares have ranged between 27p and 88.81p over 52-weeks, offering a year-to-date return of -56.5% and a one-year return of -51.6% giving the Smoove a market capitalisation of GBP23.5m.
Smoove might find things a bit tough in upcoming quarters. On average it is taking up to six months to buy a house in the UK. But the chaos caused when Liz Truss and Kwasi Kwarteng threw a mini-budget grenade into the midst of the UK economy at the end of September, and sent the country on a downward spiral of heightened interest rates, a run on the pound, a stock market collapse and exasperated the already worsening inflation system has really upset the UK property market and pushed that process out, making it harder to buy and sell homes.
Unsustainable
Overnight, thousands of consumers had mortgage deals withdrawn, their remortgaging rates pushed to unsustainable levels and sellers saw a slew of completions fail. The mini-budget probably lengthened and deepened the storm-fall of recession, which was already starting to bite, and the future of the UK property market looks a bit grim for the next few years.
EY recently released a report that predicted that the UK’s mortgage lending will slow dramatically in 2023 at the same time as house prices falling. EY believes that up to 10% of value could be wiped from house prices leaving many households in a situation of negative equity. Despite the Bank of England hiking interest rates, inflation is still lurking in the territory of 10% and as interest rates keep high, with the potential to keep rising, mortgage lending will become harder.
With mortgage rates the highest they have been in over a decade and set to rise further, this could well provoke, claims EY, a crisis in the UK’s mortgage market – which will cause concerns for Smoove. Although mortgage lending is set to rise by 4% by the end of this year to GBP63m, EY thinks this will fall to no more than 0.7% in 2023, which would be the lowest since the 2008 financial crisis.
There is a lag time in these things, the bad news takes a while to filter through, but what this will do to Smoove’s operations remains to be seen, but the prognosis doesn’t look good.
