LSL Property Services (LSE:LSL, Financial) was a top contributor for the quarter. LSL is a U.K. estate agent that also has operations in survey (appraisals for lenders) and finance services (mortgage and insurance originations to home buyers). During the quarter, LSL released full-year 2020 results, which were largely in line with our expectations. However, its 2021 guidance was well ahead of both our and market forecasts due to a robust recovery in the U.K. housing market. Revenue trends for LSL’s estate and survey business are closely tied to housing transactions, which are currently running approximately 50% above 2019 levels (aided by a holiday on stamp duty). We expect growth to moderate during the second half of 2021, but housing transactions in the U.K. are likely to increase by about 20% for the year versus 2019 levels, which would significantly increase the earnings power of LSL’s estate and survey businesses. Aside from the favorable macroeconomic backdrop, the company is also benefitting from its new CEO announcing a strategic shift that will direct increasingly more capital toward the financial services division, which is the highest quality business LSL owns. LSL also announced a joint venture with private equity firm Pollen Street Capital to acquire mortgage brokering operations and it signed a contract with real estate agent TPFG to manage its mortgage and protection business. As the financial services becomes an even larger portion of the business, we believe the market will likely ascribe a higher multiple to LSL.
From David Herro (Trades, Portfolio)'s Oakmark Intl Small Cap (Trades, Portfolio) Fund second-quarter 2021 letter.
