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Last close As at 26/05/2023
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GBP112m
Research: Real Estate
Foxtons preliminary results highlighted that FY21 was a good year. 2022 has also started well, with rents continuing to increase and the sales market remaining at buoyant levels, according to management. Furthermore, additional income streams are developing well and amounted to £9m in the period, while the company has identified c £8m of M&A investment so far this year, highlighting strategic progress. We retain our underlying assumptions and our 128p per share valuation.
Foxtons |
FY21 profit growth highlights strategic progress |
Preliminary FY21 results |
Real estate |
10 March 2022 |
Share price performance
Business description
Next events
Analyst
Foxtons is a research client of Edison Investment Research Limited |
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Foxtons preliminary results highlighted that FY21 was a good year. 2022 has also started well, with rents continuing to increase and the sales market remaining at buoyant levels, according to management. Furthermore, additional income streams are developing well and amounted to £9m in the period, while the company has identified c £8m of M&A investment so far this year, highlighting strategic progress. We retain our underlying assumptions and our 128p per share valuation.
Year end |
Revenue (£m) |
PBT* |
EPS** |
DPS |
P/E |
Yield |
12/20 |
93.6 |
1.6 |
(0.2) |
0.0 |
N/A |
N/A |
12/21 |
126.5 |
10.0 |
1.9 |
0.5 |
17.2 |
1.3% |
12/22e |
132.3 |
12.4 |
2.1 |
0.7 |
15.2 |
2.3% |
12/23e |
137.1 |
14.6 |
2.5 |
0.9 |
12.9 |
2.7% |
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 change, ie company definition.
Revenue up by a third, but profit up fivefold
Foxtons’ FY21 revenue increased by 35% to £126.5m, partly driven by recovering markets and partly by acquisition. Normalised operating profit tripled, from £3.8m to £12.1m due to good trading, operational gearing and the initial contribution from D&G lettings, offset by the voluntary repayment of £1.5m in business rates. Reported, adjusted and continuing EPS came in at 1.9p versus a small loss last year and a full year dividend of 0.45p was declared. Foxtons ended the year with net cash of £19.4m (ex £3.7m held for sale), slightly better than expectations despite returning £5.7m of surplus capital to shareholders. It has since announced a £3m share buyback that could see it buy back c 3% of the issued share capital.
Evidence of strategic progress abounds
Foxtons has had notable strategic success since the start of FY21. In particular, the purchase of D&G in March went well according to management, adding c 2,900 tenancies to the portfolio and growing it by 13.3%. Furthermore, the recent disposal of the D&G sales operation removes a loss-making entity from the group and reduces the risks associated with owning the high street network. In addition, other growth streams added £9m in revenue from three sources: private office (£3.3m), Build to Rent (£2.7m, up 68%) and Asia-Pacific sales (£2.7m). Finally, Foxtons has identified M&A investment of c £8m for the current year for the purchase of lettings books, which fits neatly with its strategy and our optimistic view of the valuation.
Valuation: 128p/share valuation retained
We believe that Foxtons’ growth strategy is bearing fruit, but the success is not reflected in the current rating, especially after the sell-off since the summer. We believe that our bull case better highlights the potential upside in forecasts, where Foxtons is particularly geared to further acquisitions of lettings books as well as growth from Build to Rent, regional expansion and its underlying markets. Our bull case scenario suggests a potential 2022 EPS of 7.4p, which implies a valuation of 128p/share when the average 2014/15 P/E of 17.5x is applied.
FY21 group and divisional performance very strong
FY21 revenue increased by 35% to £126.5m, partly driven by recovering markets and partly by M&A. Stripping out the £10m revenue relating to the acquired D&G lettings activity, revenue grew 24% y-o-y and was 9.9% ahead of 2019. Underlying trading was strong across all three divisions. In lettings, volumes rose 19% to 22,091, benefiting from market growth and M&A. In sales, volumes increased 53% to 3,122 and in mortgage broking, volumes increase 14% to 4,991 mortgages.
Exhibit 1: Full year results summary
FY19 |
FY20 |
FY21 |
FY21 vs FY19 |
FY21 vs FY20 |
|
Revenue |
|||||
Lettings |
65.7 |
57.3 |
74.3 |
13.1% |
29.8% |
Sales |
32.6 |
28.2 |
42.7 |
30.8% |
51.4% |
Mortgage Broking |
8.5 |
8.1 |
9.5 |
10.9% |
17.1% |
Total revenue |
106.9 |
93.6 |
126.5 |
18.3% |
35.2% |
Adjusted operating profit |
|||||
Lettings |
4.2 |
6.3 |
8.9 |
111.3% |
40.6% |
Sales |
(6.3) |
(5.8) |
(1.5) |
(76.0%) |
(74.3%) |
Mortgage Broking |
1.4 |
1.4 |
1.5 |
12.7% |
8.5% |
Total adjusted operating profit, pre exceptionals |
(0.7) |
1.9 |
8.9 |
- |
369.6% |
PBT (pre-exceptionals) |
(3.2) |
(0.3) |
6.9 |
- |
- |
EPS - continuing, diluted and adjusted (company definition)* |
(1.1) |
(0.2) |
1.9 |
- |
- |
DPS |
0.0 |
0.0 |
0.5 |
- |
- |
Net cash |
15.5 |
37.0 |
23.1 |
49.1% |
(37.6%) |
Source: Foxtons and Edison Investment Research. Note: *Exceptions (including tax and deferred tax remeasurement added back).
Operating profit rose nearly fivefold, from £1.9m to £8.9m, due to good trading, operational gearing and the contribution from D&G lettings, which was incremental, offset by the voluntary repayment of £1.5m in business rates. Adjusted EPS came in at 1.9p versus a small loss last year and a full year dividend of 0.45p/share was declared.
Foxtons ended the year with net cash of £19.4m (£23.1m including £3.7m of cash relating to the D&G sales operation which has subsequently been sold), slightly better than expectations despite investing £11.4m in acquisitions, returning £5.7m of surplus capital to shareholders via share buybacks and spending £0.6m on dividends. On 8 March, Foxtons announced another £3m share buyback programme, which could see it buy back c 3% of the issued share capital at the current price.
In 2021, Foxtons made material strategic progress with the integration of the D&G lettings business and disposal of the D&G sales business in the early weeks of 2022. It also carried out a strategic review of its mortgage broking business, Alexander Hall, and concluded that it is not only in the interests of the group to keep it, but also that it plans to increase the financial adviser base to fully realise the financial services cross-selling opportunities that it brings.
Lettings activity picked up; rates also moving up
The volume of lettings increased by 18.8% to 22,091, benefiting from a recovering market that added c 8% to full-year volumes, and c 2,100 lettings from the D&G acquisition which was included for 10 months of the year. Total revenue rose 29.8% y-o-y to £74.3m, the higher growth rate reflecting the superior (due to geographical bias) rental rates achieved in the acquired business. Overall, revenue per letting rose 9.2% to £3,365. Underlying rental rates in the market rose c 3%. We believe rates in FY22 are likely to rise further given the rate growth currently being witnessed as markets reopen post COVID. There will also be an additional two months’ contribution from D&G in FY22, which will add to total revenue and the average revenue per let.
|
Exhibit 2: Foxtons lettings activity, last six half years |
|
|
Source: Foxtons Group |
Sales revenue highest since 2016
Sales activity, especially in H1 when market participants took advantage of the stamp duty holiday, was very strong with FY21 volumes up 53.5% to 3,122 units. H1 volumes increased by more than 100% due to the market distortion but, even in H2, sales volumes rose 6.4% y-o-y. Revenue per unit was down 1.3% to £13,668, mainly due to mix as Foxtons handled a higher proportion of flats versus higher-value houses. Overall, sales revenue rose 51.4% to £42.7m, the highest figure reported since 2016. These figures exclude D&G sales, as the activity was held for sale at year end and subsequently sold.
Given the strength of the underlying markets and the board’s growth ambitions, Foxtons plans to add c 30 sales negotiators to the business this year. This amounts to c 0.5 employees per branch.
|
Exhibit 3: Sales activity, last six half years |
|
|
Source: Foxtons Group |
Mortgage activity to be retained and expanded
Mortgage broking activity was also buoyant in the year, benefiting in the first half from the strength of the sales market in particular. Overall, FY21 revenue increased 10.9% to £9.5m and volume rose 12.4% to 4,991 transactions. Revenue per transaction was up 2.3% to £1,895 as there was a higher proportion of purchases versus remortgages.
Foxtons’ strategic review concluded that not only were there synergies to be retained, particularly with the sales operation, but that the company would invest in headcount to better capture more of the lead generation that comes from sales activities. Recruitment is ongoing with additional costs of c £0.4m expected to reach break-even in 2022 and accretive in future years.
|
Exhibit 4: Mortgage broking activity |
|
|
Source: Foxtons Group |
Underlying forecasts unchanged; valuation remains 128p/share
Our underlying assumptions remain unchanged and our revenue forecasts are therefore similar to our previous figures. However, the table below shows a modest uptick in normalised operating profit and normalised PBT as the assumed charge for amortisation has increased by £0.6m and is added back to arrive at Edison’s ‘normalised’ result. The lower increase in EPS reflects the change mentioned above, but is offset by the increased number of shares in issue.
Exhibit 5: Summary of estimate changes
FY21 |
FY22e |
FY23e |
|||||
£m |
Old |
New |
Change (%) |
Old |
New |
Change (%) |
|
Revenue |
126.5 |
132.1 |
132.3 |
0.1% |
136.7 |
137.1 |
0.3% |
Y-o-y growth (%) |
- |
4.4% |
4.6% |
- |
3.5% |
3.6% |
- |
Total operating profit (normalised) |
12.1 |
13.9 |
14.5 |
4.6% |
15.9 |
16.7 |
4.9% |
Y-o-y growth (%) |
- |
15.2% |
20.5% |
- |
14.4% |
14.6% |
- |
PBT (normalised) |
10.0 |
12.0 |
12.4 |
3.4% |
14.0 |
14.6 |
3.9% |
Y-o-y growth (%) |
- |
19.5% |
23.6% |
- |
16.8% |
17.3% |
- |
EPS (basic normalised) (p) |
(0.5) |
3.2 |
3.3 |
1.1% |
3.6 |
3.6 |
1.5% |
Y-o-y growth (%) |
- |
N/A |
N/A |
- |
11.1% |
11.6% |
- |
Source: Foxtons Group data, Edison Investment Research
We retain our bull case valuation of 128p/share, but note that the quality of earnings has increased materially as loss-making operations have been sold and predictable lettings revenue has increased. Our bull case assumes M&A spend of c £10m on lettings books and Foxtons highlights in the statement that it has already identified M&A spend of c £8m. Given the current early stage of 2022, we believe our £10m M&A spend is realistic and could be surpassed, implying upside to the valuation scenario. We apply a 17.5x multiple, which was the average achieved in 2014/15 when the markets were similarly buoyant.
Exhibit 6: Bear, base and bull case revenue and profit scenarios
2022e |
||||
Bear |
Base |
Bull |
||
2019 revenue base (£m) |
106.9 |
106.9 |
106.9 |
|
Organic revenue growth |
(8.9) |
13.0 |
39.4 |
|
M&A revenue growth |
11.2 |
12.4 |
19.2 |
|
2022 revenue |
109.1 |
132.3 |
165.5 |
|
Operating profit |
(4.1) |
10.9 |
32.5 |
|
Interest |
(2.1) |
(2.1) |
(2.1) |
|
PBT |
(6.3) |
8.8 |
30.4 |
|
Tax (@ 19%) |
- |
(1.7) |
(5.8) |
|
Profit after tax |
(8.6) |
7.1 |
24.6 |
|
Average shares in issue (diluted) |
334.8 |
334.8 |
334.8 |
|
EPS (p) continuing, diluted and adjusted. Company definition* |
(2.6) |
2.1 |
7.3 |
|
Current price (p) |
32.4 |
|
||
Implied 2022E P/E (x) |
N/A |
15.2 |
4.4 |
|
Potential value per share |
||||
Target P/E (x) |
17.5 |
17.5 |
||
Implied value per share (p) |
37.3 |
127.7 |
||
Source: Edison Investment Research. Note: *Exceptions (including tax and deferred tax remeasurement added back).
Exhibit 7: Financial summary
£m |
2019 |
2020 |
2021 |
2022e |
2023e |
2024e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||||
Revenue |
|
|
106.9 |
93.6 |
126.5 |
132.3 |
137.1 |
142.0 |
EBITDA |
|
|
13.5 |
15.7 |
25.1 |
26.5 |
27.7 |
28.5 |
Normalised operating profit |
|
|
0.6 |
3.8 |
12.1 |
14.5 |
16.7 |
18.5 |
Amortisation of acquired intangibles |
(0.6) |
(0.8) |
(1.7) |
(1.6) |
(1.6) |
(1.6) |
||
Exceptionals |
(5.7) |
(1.1) |
(1.4) |
0.0 |
0.0 |
0.0 |
||
Share-based payments |
(0.7) |
(1.0) |
(1.5) |
(2.0) |
(2.0) |
(2.0) |
||
Reported operating profit |
(6.3) |
0.8 |
7.6 |
10.9 |
13.1 |
14.9 |
||
Net Interest |
(2.4) |
(2.2) |
(2.0) |
(2.1) |
(2.1) |
(2.1) |
||
Exceptionals |
(0.1) |
(0.0) |
(0.0) |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
(1.9) |
1.6 |
10.0 |
12.4 |
14.6 |
16.4 |
Profit Before Tax (reported) |
|
|
(8.8) |
(1.4) |
5.6 |
8.8 |
11.0 |
12.8 |
Reported tax |
1.0 |
(1.8) |
(6.9) |
(1.7) |
(2.6) |
(3.2) |
||
Profit After Tax (norm) |
(0.9) |
(0.2) |
3.1 |
10.7 |
12.0 |
13.2 |
||
Profit After Tax (reported) |
(7.8) |
(3.2) |
(1.3) |
7.1 |
8.4 |
9.6 |
||
Discontinued operations |
0.0 |
0.0 |
(4.8) |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(0.9) |
(0.2) |
(1.7) |
10.7 |
12.0 |
13.2 |
||
Net income (reported) |
(7.8) |
(3.2) |
(6.2) |
7.1 |
8.4 |
9.6 |
||
Basic average number of shares outstanding (m) |
275 |
314 |
324 |
330 |
330 |
330 |
||
EPS - basic normalised (p) |
|
|
(0.32) |
(0.08) |
(0.52) |
3.25 |
3.63 |
4.00 |
EPS - diluted normalised (p) |
|
|
(0.32) |
(0.08) |
(0.52) |
3.20 |
3.58 |
3.94 |
EPS - basic reported (p) |
|
|
(2.83) |
(1.02) |
(1.90) |
2.16 |
2.54 |
2.91 |
EPS – continuing, diluted and adjusted* |
(1.06) |
(0.16) |
1.88 |
2.13 |
2.50 |
2.87 |
||
Dividend (p) |
0.00 |
0.00 |
0.45 |
0.75 |
0.88 |
1.00 |
||
Revenue growth (%) |
(4.1) |
(12.5) |
35.2 |
4.6 |
3.6 |
0.0 |
||
EBITDA Margin (%) |
12.6 |
16.8 |
19.9 |
20.1 |
20.2 |
20.1 |
||
Normalised Operating Margin |
0.5 |
4.1 |
9.5 |
11.0 |
12.2 |
13.0 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
178.7 |
173.4 |
184.4 |
181.0 |
171.5 |
162.9 |
Intangible Assets |
101.0 |
103.5 |
107.3 |
109.4 |
110.5 |
111.6 |
||
Goodwill |
9.3 |
11.4 |
17.7 |
17.7 |
17.7 |
17.7 |
||
Tangible Assets |
13.0 |
10.5 |
9.7 |
12.5 |
12.9 |
13.3 |
||
Right of use assets |
51.4 |
44.4 |
43.8 |
31.8 |
20.8 |
10.8 |
||
Contract assets |
0.6 |
0.4 |
0.9 |
0.9 |
0.9 |
0.9 |
||
Investments & other |
3.3 |
3.1 |
5.1 |
8.8 |
8.7 |
8.7 |
||
Current Assets |
|
|
30.2 |
52.6 |
39.3 |
39.6 |
45.5 |
50.0 |
Contract assets |
1.0 |
1.7 |
3.7 |
3.7 |
3.7 |
3.7 |
||
Debtors |
13.4 |
13.9 |
16.0 |
17.2 |
17.8 |
18.5 |
||
Cash & cash equivalents |
15.5 |
37.0 |
19.4 |
20.1 |
28.0 |
35.0 |
||
Other |
0.3 |
0.1 |
0.3 |
(1.4) |
(3.9) |
(7.1) |
||
Current Liabilities |
|
|
(27.9) |
(29.2) |
(31.9) |
(31.9) |
(33.1) |
(33.7) |
Creditors |
(10.5) |
(10.3) |
(14.5) |
(14.6) |
(15.8) |
(16.3) |
||
Lease liabilities |
(9.7) |
(10.8) |
(8.8) |
(8.8) |
(8.8) |
(8.8) |
||
Contract liabilities |
(6.3) |
(7.7) |
(8.2) |
(8.2) |
(8.2) |
(8.2) |
||
Other |
(1.4) |
(0.4) |
(0.3) |
(0.3) |
(0.3) |
(0.3) |
||
Long Term Liabilities |
|
|
(65.2) |
(62.4) |
(68.4) |
(56.0) |
(42.6) |
(28.7) |
Lease liabilities |
(46.2) |
(40.7) |
(39.3) |
(28.5) |
(17.7) |
(7.0) |
||
Contract liabilities |
(1.3) |
(1.1) |
(1.1) |
(1.1) |
(1.1) |
(1.1) |
||
Other long-term liabilities |
(17.8) |
(20.6) |
(28.0) |
(26.3) |
(23.7) |
(20.5) |
||
Net Assets |
|
|
115.8 |
134.5 |
123.5 |
132.8 |
141.3 |
150.6 |
Shareholders' equity |
|
|
115.8 |
134.5 |
123.5 |
132.8 |
141.3 |
150.6 |
CASH FLOW |
||||||||
Op Cash Flow before WC and tax |
(2.6) |
4.3 |
4.2 |
12.5 |
14.7 |
16.5 |
||
Depreciation - Right of use assets |
9.8 |
9.4 |
13.0 |
12.0 |
11.0 |
10.0 |
||
Impairment of goodwill |
0.0 |
0.0 |
3.2 |
0.0 |
0.0 |
0.0 |
||
Branch asset impairment |
4.3 |
1.7 |
1.1 |
0.0 |
0.0 |
0.0 |
||
Gain on disposal of PPE etc |
(0.4) |
(0.5) |
(1.4) |
(0.5) |
(0.5) |
(0.5) |
||
Working capital |
(2.6) |
(0.6) |
1.7 |
(1.1) |
0.6 |
(0.1) |
||
Decrease in provisions |
0.8 |
(0.8) |
0.2 |
(1.0) |
(1.0) |
(1.0) |
||
Share based payment charges |
0.7 |
1.0 |
1.5 |
2.0 |
2.0 |
2.0 |
||
Cash settlement of share incentive plan |
(0.4) |
0.0 |
0.0 |
(0.5) |
(0.5) |
(0.5) |
||
Tax |
0.2 |
0.2 |
(0.2) |
(1.7) |
(2.6) |
(3.2) |
||
Net operating cash flow |
|
|
9.8 |
14.7 |
23.5 |
21.8 |
23.7 |
23.2 |
Capex |
(0.3) |
(0.4) |
(1.7) |
(6.0) |
(0.4) |
(0.4) |
||
Acquisitions/disposals |
(0.2) |
(3.9) |
(14.5) |
(0.6) |
(0.1) |
(0.1) |
||
Net interest |
0.0 |
0.0 |
(0.0) |
0.1 |
0.1 |
0.1 |
||
Dividends |
0.0 |
0.0 |
(0.6) |
(1.5) |
(2.5) |
(2.9) |
||
Repayment of lease liabilities |
(12.0) |
(10.0) |
(15.2) |
(13.0) |
(13.0) |
(13.0) |
||
Purchase of own shares |
(0.1) |
(0.3) |
(5.7) |
(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 |
||
Other |
0.3 |
0.3 |
0.3 |
0.3 |
0.3 |
0.3 |
||
Net Cash Flow |
(2.4) |
21.5 |
(13.9) |
0.8 |
7.9 |
7.0 |
||
Opening net debt/(cash) |
|
|
(17.9) |
(15.5) |
(37.0) |
(23.1) |
(23.8) |
(31.7) |
Closing net debt/(cash) (excluding lease liabilities) |
|
(15.5) |
(37.0) |
(23.1) |
(23.8) |
(31.7) |
(38.7) |
|
Closing net debt/(cash) (including lease liabilities) |
40.4 |
14.6 |
28.7 |
17.2 |
(1.4) |
(19.2) |
||
Source: Company data, Edison Investment Research. Note: *Company definition.
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Research: Healthcare
Sareum’s H122 results (to end-December 2021) provided an update on the company’s progress with its therapeutic pipeline. With final toxicology and safety studies for lead asset SDC-1801 completed in Q4 of CY21 (final report expected by end-Q122), the company is on track to file an exploratory clinical trial application (CTA) in mid-2022 and start clinical studies in H222. The cash balance of £5.6m at the end of H1 should be sufficient to take SDC-1801 through Phase Ia clinical trials and accelerate SDC-1802’s preclinical progress, with the company continuing to assess options to further clinical development. Sareum completed the 50:1 share consolidation it announced at the December 2021 AGM, with the new shares starting trading on 1 March.
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