Following yesterday's full year results for 2016, there appears to be plenty of upside potential for this great little business.....and appears to be supported by both brokers and other media commentators, an example of one below.
'In the context of a quiet housing market, ULS Technology (AIM: ULS) continues to take share in conveyancing and CEO Ben Thompson describes trading as quite buoyant. Housing transactions were down by 13 per cent in the year to March but ULS grew volumes by 4 per cent as more mortgage introducers joined its platform. With an estimated 2-3 per cent market share, theres plenty of scope for further growth.
The companys eConveyancer platform allows a mortgage broker or lender to identify a suitable solicitor to carry out the conveyancing for a property transaction. Once engaged the solicitor can use the platform to carry out legal searches and ID checks, paying a commission to ULS for the introduction and use of services. ULS then shares this revenue with the introducing mortgage provider. The business is evenly split between lenders and brokers, with the long-standing Lloyds relationship being diversified by growth elsewhere and accounting for around a third of revenue.
ULS performs best in process-driven organisations like the leading brokers, where most transactions will be channeled through the platform. So theres scope to improve penetration in some the more loosely managed relationships. The main growth driver though is the pipeline of new relationships. These continue to come on stream and underpin managements confidence in the outlook, despite the soft background in housing transactions. This flow of business is described as being in a good phase by Ben Thompson.
Another source of growth is the move into developing estate agency relationships through the recent Conveyancing Alliance acquisition and management are actively looking for more similar deals. Direct to consumer is likely to be a slow burn by comparison. The long term goal is to be seen as the leading technology comparison tool for property-related legal services.
The business generates cash, while net debt stood at £3.5 million in March following the acquisition spend. Broker Numis looks for 11 per cent earnings growth this year and acknowledges that the risk here is to the upside. Which is a solid outlook in a tricky environment. The shares have performed very strongly over the last year, but a p/e of 20 still looks reasonable given the prospects.
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