'Slower than expected' growth of broker consolidator dents LSL profits

'Slower than expected' growth of broker consolidator dents LSL profits
(Darren Staples/Bloomberg)

LSL, the parent company of mortgage broker network Primis, has said its profits will be slightly lower because the expansion of its broker consolidator has been "slower than expected".

Last year the residential property services provider entered a £200m joint venture with private equity investor Pollen Street Capital to establish mortgage brokerage Pivotal Growth.

Earlier this week the company made its third acquisition, with the deal to buy The Loan Partnership, a specialist mortgage broker based in Hemel Hempstead which focuses on second charge mortgages and bridging finance.

It followed the recent acquisitions of Lifetime Finance Group and Grange Mortgage and Protection Services.

But in an update to shareholders, LSL said: "We were pleased to recently announce the third acquisition by Pivotal Growth.

"Whilst there is a good pipeline of deals, and we remain confident of the medium-term prospects for value creation, completion of acquisitions has been slower than expected, and as a result Pivotal Growth has remained in an investment phase for longer than previously anticipated."

The update continued: "Assuming activity is in line with [our] estimates, overall profit is expected to be slightly behind the record profits posted in 2021, principally reflecting slower than anticipated deal flow in Pivotal Growth, and the limited impact of cost inflation."

LSL has committed up to £33.5m to support the acquisition of mortgage advice firms to be made by Pivotal Growth, while Pollen Street Capital has committed up to £62.4m.

The investment by both parties will be supplemented with external debt finance in Pivotal Growth to fund purchases.

LSL added in its update that residential pipeline conversation rates were "extremely slow" due to industry-wide capacity issues in conveyancing.

The company said the residential sales exchange pipeline now stands at nearly record levels, having increased by more than £4m since the beginning of the year.

LSL said: "We have yet to see clear evidence of a sustained improvement in residential pipeline conversion and should the current slow conversion rates across the market persist or fall throughs increase, then more significant pressure would be placed on profits in our estate agency division and to a lesser extent in our financial services businesses."