The Property Franchise Group has warned the City that the tenant fee ban will lose its franchisees 17% of their income, and will hit group revenue and profits.
Announcing its results for the first half of this year, the group said the hit to its bottom line would be £0.75m, or £0.5m if there is careful mitigation.
CEO Ian Wilson also said that while smaller independent competitors would become unprofitable, its own smaller franchised businesses will also be at risk.
He told EYE that out of 377 outlets in the group currently, 263 are high street brands (the rest are EweMove outlets).
He said he is expecting the number of high street outlets to fall. “I would not be unhappy if the number fell to 250,” he said.
“While there may be fewer offices, I envisage that the average number of properties under management per branch grows.”
He said that active rent management is just one strategy being employed across the group: “We are urging our agents to get tenancies on to fixed terms, not periodic, so that we can ensure that rents are regularly reviewed.”
Wilson envisages rents rising next year, with landlords being charged more. The business’s assisted acquisition programme, whereby franchisees are helped to buy local competitors, will be ramped up.
Yesterday’s results also focused on the turnaround of hybrid brand EweMove.
Wilson said that last year, The Property Franchise Group had had to issue a profits warning because of EweMove’s under-performance. He also said that there had been high churn of franchisees.
He told EYE: “It is now the fifth biggest online agent, and our total investment in it has been £9m. When you consider that some online firms are burning through £1m each month, I think we have done well.
“We are now recruiting more estate agents as franchisees: a quarter of EweMove franchisees are now experienced agents, and we aim to raise this to 50%.”
He said estate agents were generally very interested in the EweMove proposition: “They know it’s not a listing model but a genuine estate agency – and they can make a lot of money because they don’t have the usual overheads.
“They pay us a licence fee of £1,000 per month, and then give us £250 every time a property is sold. The rest goes straight in their pockets. We have franchisees earning plenty of money – and driving very smart cars.”
The Property Franchise Group said that as at the end of June, it had 53,000 managed properties, up from the 50,000 at the same time last year.
Head office income, through Management Service Fees, rose by 15% to £4.4m. Overall revenue was up 17% to £5.5m.
Pre-tax profits were up 32% to £1.9m.
Yesterday, shares in the business rose 8.5% to 147.5p.
Shares in competitor Belvoir, which also reported robust half-year results this week, stayed flat at 107.5p.
Shares in Winkworth – see next story – rocketed almost 15% to 125p.