The Agency pays for aggressive expansion

It may have come with a hefty price tag, but Perth-based national property group The Agency (ASX: AU1) has achieved a whopping 150 per cent increase in revenue to $40 million.

In the three months to June 30 the company's cash receipts increased 50 per cent quarter-on-quarter to hit $13.7 million, on the back of a record number of exchanges and listings.

The Agency's scope and income have increased significantly in recent years through aggressive expansion.

Its share price has gone in the opposite direction and has fallen to around a sixth of its former value in two years. 

The company's executives appear to be betting their investments in bulking up revenue sources will pay off in the long-term when it comes to profitabiliy. 

Gross commission income (GCI) stayed steady at $10 million for the quarter, with $1.3 million coming from the recently acquired Sydney-based Top Level Real Estate.

The takeover of Top Level, known for its brand Sell Lease Property (SLP), was completed on 17 January following an ambitious capital raise last year that secured $13.4 million in new equity.

Top Level was co-founded by Matt Lahood who is now the CEO of The Agency, alongside Ben Collier, Steven Chen, Shad Hassan and John Kolenda.

In The Agency's latest financial figures it noted a consideration of $10.5 million for the acquisition, and negative net assets relating to Top Level of $10.79 million.

At the time of writing though, The Agency's market capitalisation was only $7.06 million.

To make matters more challenging, cash outflows for the current quarter are estimated at $13 million.

On 24 July the group raised $5.6 million in funding through a $1.1 million placement and a $4.5 million 4:7 entitlement offer, and was boosted by Magnolia Capital becoming a major shareholder with an 18 per cent stake.

"Through this transaction we will strengthen our balance sheet, by converting a significant level of debt and attracting new funds into the business," The Agency managing director Paul Niardone (pictured) said at the time.

"At the same time, we have attracted two new strategic shareholders who understand our business model and can see how it has disrupted, and will continue to disrupt, the Australian real estate market.

"With a strong balance sheet and highly successful business model, we plan to accelerate our growth plans in key real estate markets during a time where our peers are stagnating or contracting."

In an announcement on 10 July, Niardone said quarterly sales were a "significant achievement" considering the prevailing tough conditions in The Agency's key markets on both the East and West Coasts.

"In particular, The Agency (WA) delivered a stellar quarterly result with records across all key metrics while The Agency (East Coast) and SLP continued to perform strongly," he said.

"Our expansion into the lucrative Southern Highlands region of NSW and the city of Mandurah in WA is further evidence that our disruptive model attracts the best talent that can negotiate the best results for our clients in any market conditions.

"On the topic of market conditions, should the market start to turnaround, this will only aid in improving our results. Considering our significant achievements during the downturn, we will be well placed when the property market rebounds."

Business News Australia