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Currency in GBP
Last close As at 26/05/2023
GBP0.37
▲ −0.90 (−2.36%)
Market capitalisation
GBP112m
Research: Real Estate
Foxtons Group’s Q1 trading update highlighted increased revenue per transaction and market share gains, evidence of early progress in rolling out the new strategy – characterised by upgrades to data infrastructure, investment in staff and a reinvigoration of the Foxtons brand. If the strategy succeeds, over the medium term Foxtons expects margins to expand by 500bp and operating profit to more than double. We retain our base case valuation of 59p/share and our preferred ‘bull’ case valuation of 124p/share, more than three times the current price.
Foxtons Group |
Early signs of strategic success |
Q1 trading update |
Real estate |
20 April 2023 |
Share price performance
Business description
Next events
Analyst
Foxtons Group is a research client of Edison Investment Research Limited |
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Foxtons Group’s Q1 trading update highlighted increased revenue per transaction and market share gains, evidence of early progress in rolling out the new strategy – characterised by upgrades to data infrastructure, investment in staff and a reinvigoration of the Foxtons brand. If the strategy succeeds, over the medium term Foxtons expects margins to expand by 500bp and operating profit to more than double. We retain our base case valuation of 59p/share and our preferred ‘bull’ case valuation of 124p/share, more than three times the current price.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/21 |
126.5 |
10.0 |
2.0 |
0.5 |
19.3 |
1.3 |
12/22 |
140.3 |
13.7 |
3.0 |
0.9 |
12.8 |
2.3 |
12/23e |
137.8 |
13.5 |
2.4 |
0.8 |
16.0 |
2.1 |
12/24e |
146.5 |
17.8 |
3.3 |
1.2 |
11.7 |
3.1 |
Note: *PBT is normalised, excluding amortisation of acquired intangibles, exceptional items discontinued business and share-based payments. EPS is similar but after charging for share-based payments and excluding deferred tax re-measurement attributable to the corporate tax charge, ie diluted company definition.
Total revenue growth of 10% reflects strategic action
Foxtons traded in line with management expectations in Q1 and reported total revenue growth of 10% to £32.9m. Stripping out M&A revenue relating to the Lettings division, underlying like-for-like revenue grew 5.3%, reflecting progress on the group strategy. This includes focusing on increased revenue/transaction in Lettings, where Foxtons has been prioritising longer non-cancellable tenancy terms. Furthermore, in Sales the benefit of increased headcount has resulted in an increase in market share and investment in training, and focus on estate agency key performance indicators has improved lead generation and cross-selling.
Lettings growth more than offsets weaker sales
The core Lettings division grew total revenue by 27% to £22.8m, driven by 20% organic growth and 7% from the May 2022 and March 2023 acquisitions. The division now accounts for 69% (FY22: 60%) of group revenue. Sales revenue declined as expected, by 16% to £8.1m, reflecting a lower under-offer pipeline at the start of the year, which was a consequence of the malaise caused by the September mini-budget. The Financial Services division was also affected by the lower activity level in the sales market, reporting revenue down 18% to £2.0m, offset by marginally higher volumes from refinance customers.
Valuation: 124p/share value retained
Foxtons completed the highest number of viewings in the last five years, which is a positive lead indicator for 2023, especially H2. Our underlying estimates are unchanged and our ‘bull’ case valuation, which attempts to reflect market share gains across all three divisions in line with the revised strategy, remains 124p/ share. It also attempts to reflect some value for yet to be announced M&A and Build to Rent activity. M&A has been a strong feature of the group for the last three years and is likely to remain so given its strategy, financial strength and the opportunities that exist.
Exhibit 1: Financial summary
£m |
2019 |
2020 |
2021 |
2022 |
2023e |
2024e |
2025e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||||
Revenue |
|
|
106.9 |
93.6 |
126.5 |
140.3 |
137.8 |
146.5 |
155.0 |
EBITDA |
|
|
13.5 |
15.7 |
25.1 |
27.8 |
26.7 |
30.0 |
32.5 |
Normalised operating profit |
|
|
0.6 |
3.8 |
12.1 |
15.6 |
15.7 |
20.0 |
22.5 |
Amortisation of acquired intangibles |
(0.6) |
(0.8) |
(1.7) |
(1.6) |
(1.8) |
(1.9) |
(1.9) |
||
Share-based payments |
(0.7) |
(1.0) |
(1.5) |
(0.2) |
(2.0) |
(2.0) |
(2.0) |
||
Total adjusted operating profit |
(0.7) |
1.9 |
8.9 |
13.9 |
11.9 |
16.1 |
18.6 |
||
Exceptionals |
(5.7) |
(1.1) |
(1.4) |
(0.1) |
0.0 |
0.0 |
0.0 |
||
Reported operating profit |
(6.3) |
0.8 |
7.6 |
13.8 |
11.9 |
16.1 |
18.6 |
||
Net Interest |
(2.4) |
(2.2) |
(2.0) |
(1.9) |
(2.2) |
(2.2) |
(2.1) |
||
Exceptionals |
(0.1) |
(0.0) |
(0.0) |
(0.0) |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
(1.9) |
1.6 |
10.0 |
13.7 |
13.5 |
17.8 |
20.3 |
Profit Before Tax (reported) |
|
|
(8.8) |
(1.4) |
5.6 |
11.9 |
9.7 |
13.9 |
16.4 |
Reported tax |
1.0 |
(1.8) |
(6.9) |
(2.4) |
(2.3) |
(3.5) |
(4.1) |
||
Discontinued operations |
0.0 |
0.0 |
(4.8) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(0.9) |
(0.2) |
(1.7) |
11.4 |
11.2 |
14.4 |
16.2 |
||
Net income (reported) |
(7.8) |
(3.2) |
(6.2) |
9.6 |
7.4 |
10.5 |
12.3 |
||
Basic average number of shares outstanding (m) |
275 |
314 |
324 |
308 |
308 |
308 |
308 |
||
EPS - basic normalised (p) |
|
|
(0.32) |
(0.08) |
(0.52) |
3.69 |
3.64 |
4.67 |
5.27 |
EPS - basic reported (p) |
|
|
(2.83) |
(1.02) |
(1.90) |
3.11 |
2.41 |
3.40 |
4.01 |
EPS - Continuing, diluted, and adjusted. Company definition |
|
|
(1.06) |
(0.16) |
1.98 |
3.00 |
2.37 |
3.35 |
3.95 |
Dividend (p) |
0.00 |
0.00 |
0.45 |
0.90 |
0.83 |
1.17 |
1.38 |
||
Revenue growth (%) |
(-4.1) |
(-12.5) |
35.2 |
10.9 |
(-1.8) |
0.0 |
0.0 |
||
EBITDA Margin (%) |
12.6 |
16.8 |
19.9 |
19.8 |
19.3 |
20.5 |
20.9 |
||
Normalised Operating Margin |
0.5 |
4.1 |
9.5 |
11.1 |
11.4 |
13.7 |
14.5 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
178.7 |
173.4 |
184.4 |
191.7 |
188.9 |
181.0 |
173.2 |
Intangible Assets |
101.0 |
103.5 |
107.3 |
109.3 |
110.4 |
111.5 |
112.6 |
||
Goodwill |
9.3 |
11.4 |
17.7 |
26.1 |
26.1 |
26.1 |
26.1 |
||
Tangible Assets |
13.0 |
10.5 |
9.7 |
10.7 |
17.8 |
18.9 |
20.0 |
||
Right of use assets |
51.4 |
44.4 |
43.8 |
42.6 |
31.6 |
21.6 |
11.6 |
||
Contract assets |
0.6 |
0.4 |
0.9 |
1.7 |
1.7 |
1.7 |
1.7 |
||
Investments & other |
3.3 |
3.1 |
5.1 |
1.4 |
1.3 |
1.3 |
1.2 |
||
Current Assets |
|
|
30.2 |
52.6 |
39.3 |
34.5 |
32.4 |
41.2 |
50.9 |
Contract assets |
1.0 |
1.7 |
3.7 |
5.7 |
5.7 |
5.7 |
5.7 |
||
Debtors |
13.4 |
13.9 |
16.0 |
16.0 |
17.9 |
19.0 |
20.2 |
||
Cash & cash equivalents |
15.5 |
37.0 |
19.4 |
12.0 |
8.1 |
15.8 |
24.3 |
||
Other |
0.3 |
0.1 |
0.3 |
0.7 |
0.7 |
0.7 |
0.7 |
||
Current Liabilities |
|
|
(27.9) |
(29.2) |
(31.9) |
(38.7) |
(37.1) |
(38.0) |
(38.9) |
Creditors |
(10.5) |
(10.3) |
(14.5) |
(16.7) |
(15.2) |
(16.1) |
(17.1) |
||
Lease liabilities |
(9.7) |
(10.8) |
(8.8) |
(10.7) |
(10.7) |
(10.7) |
(10.7) |
||
Contract liabilities |
(6.3) |
(7.7) |
(8.2) |
(9.7) |
(9.7) |
(9.7) |
(9.7) |
||
Other |
(1.4) |
(0.4) |
(0.3) |
(1.5) |
(1.5) |
(1.4) |
(1.4) |
||
Long Term Liabilities |
|
|
(65.2) |
(62.4) |
(68.4) |
(64.9) |
(54.1) |
(43.3) |
(32.6) |
Lease liabilities |
(46.2) |
(40.7) |
(39.3) |
(35.8) |
(25.0) |
(14.2) |
(3.5) |
||
Contract liabilities |
(1.3) |
(1.1) |
(1.1) |
(0.3) |
(0.3) |
(0.3) |
(0.3) |
||
Other long term liabilities |
(17.8) |
(20.6) |
(28.0) |
(28.8) |
(28.8) |
(28.8) |
(28.8) |
||
Shareholders' equity |
|
|
115.8 |
134.5 |
123.5 |
122.7 |
130.1 |
140.9 |
152.5 |
CASH FLOW |
|||||||||
Op Cash Flow before WC and tax |
(2.6) |
4.3 |
6.6 |
15.0 |
13.7 |
18.0 |
20.5 |
||
Depreciation - Right of use assets |
9.8 |
9.4 |
10.6 |
12.2 |
11.0 |
10.0 |
10.0 |
||
Impairment of goodwill |
0.0 |
0.0 |
3.2 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Branch asset impairment |
4.3 |
1.7 |
1.1 |
(0.3) |
0.0 |
0.0 |
0.0 |
||
Gain on disposal of PPE etc |
(0.4) |
(0.5) |
(1.4) |
(0.3) |
(0.5) |
(0.5) |
(0.5) |
||
Working capital |
(2.6) |
(0.6) |
1.7 |
(1.2) |
(3.4) |
(0.2) |
(0.2) |
||
Decrease in provisions |
0.8 |
(0.8) |
0.2 |
1.1 |
(1.0) |
(1.0) |
(1.0) |
||
Share based payment charges |
0.7 |
1.0 |
1.5 |
0.2 |
2.0 |
2.0 |
2.0 |
||
Cash settlement of share incentive plan |
(0.4) |
0.0 |
0.0 |
(0.0) |
(0.5) |
(0.5) |
(0.5) |
||
Tax |
0.2 |
0.2 |
(0.2) |
(2.7) |
(2.3) |
(3.5) |
(4.1) |
||
Net operating cash flow |
|
|
9.8 |
14.7 |
23.5 |
23.9 |
19.0 |
24.4 |
26.2 |
Capex |
(0.3) |
(0.4) |
(1.7) |
(2.9) |
(0.4) |
(0.4) |
(0.4) |
||
Acquisitions/disposals |
(0.2) |
(3.9) |
(14.5) |
(9.6) |
(6.8) |
(0.8) |
(0.8) |
||
Net interest |
0.0 |
0.0 |
(0.0) |
0.1 |
0.0 |
0.0 |
0.1 |
||
Dividends |
0.0 |
0.0 |
(0.6) |
(1.5) |
(2.8) |
(2.6) |
(3.6) |
||
Repayment of lease liabilities |
(12.0) |
(10.0) |
(15.2) |
(12.7) |
(13.0) |
(13.0) |
(13.0) |
||
Purchase of own shares |
(0.1) |
(0.3) |
(5.7) |
(4.9) |
(0.3) |
(0.3) |
(0.3) |
||
Net proceeds from issue of ord. Shares |
0.0 |
21.1 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.3 |
0.3 |
0.3 |
(3.4) |
0.3 |
0.3 |
0.3 |
||
Net Cash Flow |
(2.4) |
21.5 |
(13.9) |
(11.1) |
(3.9) |
7.7 |
8.5 |
||
Opening net debt/(cash) |
|
|
(17.9) |
(15.5) |
(37.0) |
(23.1) |
(12.0) |
(8.1) |
(15.8) |
Closing net debt/(cash) (ex-lease liabilities |
|
(15.5) |
(37.0) |
(23.1) |
(12.0) |
(8.1) |
(15.8) |
(24.3) |
|
Source: Company data and Edison Investment Research
|
|
Research: TMT
MotorK’s Q123 trading update indicates that the group is on track to meet its FY23 guidance and our forecasts after management secured 59% of the annual recurring revenue (ARR) growth required. Performance in Q1 was strong, with the group reporting high double-digit revenue growth, driven by low customer churn and continuing multi-product adoption. With investment in its platform largely complete, the company is starting to see operating leverage. The stock is up 89% year to date, and we believe there is still significant upside potential, as highlighted by its discount to peers.
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