Foxtons Group — Firm evidence of restructuring success

Foxtons Group (LSE: FOXT)

Last close As at 22/02/2024

GBP0.58

−0.20 (−0.34%)

Market capitalisation

GBP176m

More on this equity

Research: Real Estate

Foxtons Group — Firm evidence of restructuring success

In FY23, Foxtons Group’s three divisions took market share, the direct result of management action to invest in the business. The company’s new strategy focuses growth on non-cyclical revenue streams and decouples performance from sales market cycles. This is evidenced in the FY23 trading update, which highlights a financial performance that exceeds market expectations. At this early stage of the year, we are retaining our FY24 and FY25 estimates and valuation, but it would appear that the risks to our estimates are to the upside.

Andy Murphy

Written by

Andy Murphy

Director, Financials & Industrials

Male hand showing, offering a new dream house at the empty field with copy space

Real Estate

Foxtons Group

Firm evidence of restructuring success

FY23 trading update

Real estate

26 January 2024

Price

53p

Market cap

£158m

Net debt (£m) at 31 December 2023

7

Shares in issue

330.1

Free float

100%

Code

FOXT

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

15.6

39.3

36.8

Rel (local)

18.2

34.7

41.1

52-week high/low

54p

34p

Business description

Foxtons Group is London’s leading and most widely recognised estate agency. It operates from a network of 60 interconnected branches offering a range of residential-related services, which break down into three separate revenue streams: Lettings, Sales and Financial Services.

Next events

Preliminary results

25 March 2024

Q1 trading update

May 2024

Analyst

Andy Murphy

+44 (0)20 3077 5700

Foxtons Group is a research client of Edison Investment Research Limited

In FY23, Foxtons Group’s three divisions took market share, the direct result of management action to invest in the business. The company’s new strategy focuses growth on non-cyclical revenue streams and decouples performance from sales market cycles. This is evidenced in the FY23 trading update, which highlights a financial performance that exceeds market expectations. At this early stage of the year, we are retaining our FY24 and FY25 estimates and valuation, but it would appear that the risks to our estimates are to the upside.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/21

126.5

10.0

2.0

0.5

26.8

0.8

12/22

140.3

13.7

3.0

0.9

17.7

1.7

12/23e

147.1

15.6

3.0

0.9

17.9

1.7

12/24e

157.6

19.0

3.5

1.2

15.1

2.3

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).

Evidence of market outperformance obvious

FY23 revenue and adjusted operating profit are expected to be c £147m and c £14m respectively, both of which exceed market consensus and our now raised FY23 estimates. Lettings grew revenue by 16% to c £101m and now represents c 70% of group revenue. Sales revenue was down 14% y-o-y to c £37m, compared to a market that saw volumes down 22% and average sales prices down c 2.4%, thus representing a strong improvement in market share, from c 3.3% to c 4.0%. Financial Services revenue declined c 12% to c £9m, hit by lower sales volumes and mix trends. Foxtons ended the year with net debt of c £7m after investing £13.9m in M&A, £11m in working capital and a total of £3.8m in dividends and the share buyback.

Strategic action having a materially positive impact

Management action to invest in the business and leverage Foxtons’ platform is clearly making a material difference to performance. Investing in the right quality of staff, and in higher numbers, has reduced the attrition rate, as well as raising morale and productivity. Real-time data across a wide range of metrics are being utilised more effectively, both to drive leads and monitor staff and branch performance, which is leading to a more competitive internal environment that encourages cross-selling and up-selling between offerings and divisions.

Valuation: Preferred ‘bull’ case retained at 127p

Trading in the run up to Christmas was strong, boosted by more competitive mortgage offers, and this momentum, along with across-the-board market share gains, has continued into the new year. Foxtons entered 2024 with an under-offer pipeline that was ‘significantly ahead’ of 2023, which bodes well. We retain our ‘base’ case valuation of 62p and our preferred ‘bull’ case valuation, which attempts to reflect market share gains across all three divisions in line with the revised strategy, of 127p, although we accept that forecast risks appear to be to the upside.

Exhibit 1: Financial summary

£'m

2019

2020

2021

2022

2023e

2024e

2025e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

106.9

93.6

126.5

140.3

147.1

157.6

163.9

EBITDA

 

 

13.5

15.7

25.1

27.8

28.9

31.7

34.4

Normalised operating profit

 

 

0.6

3.8

12.1

15.6

17.9

21.7

24.4

Amortisation of acquired intangibles

(0.6)

(0.8)

(1.7)

(1.6)

(1.8)

(2.4)

(2.4)

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

14.1

17.4

20.0

Exceptionals

(5.7)

(1.1)

(1.4)

(0.1)

(4.4)

0.0

0.0

Reported operating profit

(6.3)

0.8

7.6

13.8

9.7

17.4

20.0

Net Interest

(2.4)

(2.2)

(2.0)

(1.9)

(2.2)

(2.7)

(2.5)

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

15.6

19.0

21.9

Profit Before Tax (reported)

 

 

(8.8)

(1.4)

5.6

11.9

7.4

14.6

17.5

Reported tax

1.0

(1.8)

(6.9)

(2.4)

(1.7)

(3.7)

(4.4)

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

13.9

15.3

17.5

Net income (reported)

(7.8)

(3.2)

(6.2)

9.6

5.7

11.0

13.1

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

4.51

4.98

5.69

EPS - basic reported (p)

 

 

(2.83)

(1.02)

(1.90)

3.11

1.84

3.57

4.27

EPS - Continuing, diluted and adjusted, company definition (p)

 

 

(1.06)

(0.16)

1.98

3.00

2.97

3.52

4.21

Dividend (p)

0.00

0.00

0.45

0.90

0.90

1.23

1.47

Revenue growth (%)

(-4.1)

(-12.5)

35.2

10.9

4.9

7.1

4.0

EBITDA Margin (%)

12.6

16.8

19.9

19.8

19.6

20.1

21.0

Normalised Operating Margin (%)

0.5

4.1

9.5

11.1

12.1

13.8

14.9

BALANCE SHEET

Fixed Assets

 

 

178.7

173.4

184.4

191.7

196.1

189.7

181.9

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

25.0

27.6

28.7

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

24.7

34.5

46.2

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

25.0

31.5

32.8

Cash & cash equivalents

15.5

37.0

19.4

12.0

(6.7)

(3.5)

7.0

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)

(38.1)

(39.2)

(39.9)

Creditors

(10.5)

(10.3)

(14.5)

(16.7)

(16.2)

(17.3)

(18.0)

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)

(55.1)

(45.8)

(36.3)

Lease liabilities

(46.2)

(40.7)

(39.3)

(35.8)

(26.0)

(16.7)

(7.2)

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

127.6

139.1

151.8

CASH FLOW

Op Cash Flow before WC and tax

(2.6)

4.3

6.6

15.0

11.5

19.7

22.4

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)

(9.5)

(5.4)

(0.6)

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)

(1.7)

(3.7)

(4.4)

Net operating cash flow

 

 

9.8

14.7

23.5

23.9

11.2

20.7

27.4

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)

(14.0)

(2.3)

(0.8)

Net interest

0.0

0.0

(0.0)

0.1

(0.0)

(0.0)

(0.0)

Dividends

0.0

0.0

(0.6)

(1.5)

(2.8)

(2.8)

(3.8)

Repayment of lease liabilities

(12.0)

(10.0)

(15.2)

(12.7)

(12.0)

(12.0)

(12.0)

Purchase of own shares

(0.1)

(0.3)

(5.7)

(4.9)

(1.1)

(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)

(18.7)

3.3

10.4

Opening net debt/(cash)

 

 

(17.9)

(15.5)

(37.0)

(23.1)

(12.0)

6.7

3.5

Closing net debt/(cash) (ex lease liabilities

 

(15.5)

(37.0)

(23.1)

(12.0)

6.7

3.5

(7.0)

Source: company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Foxtons Group and prepared and issued by Edison, in consideration of a fee payable by Foxtons Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Foxtons Group and prepared and issued by Edison, in consideration of a fee payable by Foxtons Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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