H125 results reflect progress toward revised targets
H125 revenue and profit were strong, but headline figures mask a sharp contrast in
fortunes in Sales between Q1 and Q2. Elsewhere, demand was generally good with the
acquisitions continuing to bed in well. Strategic progress continues afoot, as outlined
at the June capital markets day, and Foxtons has announced plans to relocate its head
office to a more suitably sized location, which in turn offers significant cost savings.
The outlook is hopeful but unchanged, as are our revenue and operating profit forecasts,
but risks could be to the upside if interest rates decline, leading to increased consumer
confidence. Our 134p valuation is unchanged.
H1 revenue growth driven by Sales despite volatility
H125 was somewhat of a roller coaster, particularly in Sales, where changes to Stamp
Duty pulled demand forward into Q1 at the expense of Q2. Overall, revenue increased
by 9.5% to £86.1m, with growth registered in all three divisions. The key driver again
was Sales, despite the quarterly volatility. Adjusted operating profit increased by
30.5% to £12.3m, as Lettings benefited from a number of positives and losses in Sales
were significantly reduced as the operational gearing inherent in the business came
to bear. Adjusted PBT increased 34.4% to £11.3m and adjusted and diluted EPS rose
29.3% to 2.7p despite an increase in the applied tax rate.
The interim dividend was increased by 9.1% to 0.24p per share, in line with the strategy,
and net debt came in at £18.2m, versus £11.3m in H124, largely reflecting the impact
of acquisitions, lease repayments, the return of capital to shareholders via dividends
and the share buyback programme. We calculate that free cash flow almost doubled year-on-year,
from £6.4m in H124 to £11.5m, which is a fairer reflection of the underlying cash
performance in the business.
| Exhibit 1: Interim results summary |
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| Source: Foxtons Group, Edison Investment Research |
Lettings: London volumes and rates increase, commuter markets add volume
In H1, Foxtons’ Lettings revenue increased 4.3% to £54.6m (H124: £52.4m) and accounted
for just over 60% of total group revenue for the period. Average revenue per transaction
increased by a modest 2.7% to £5,663 as the demand and supply dynamics were stable
and there was a 1.6% increase in the overall lettings volumes to 9,646. Of the £2.2m
revenue increase, £2.9m was accounted for by six additional months’ trading from Haslam
and Imagine (acquired in October 2024) and an additional four months of trading from
Marshall Vizard, acquired in February 2025. This was offset by a £0.5m reduction in
interest on client monies to £2.9m as the Bank of England base rate declined.
Operating profit increased from £13.8m to £15.5m, reflecting a 210bp increase in the
margin to 28.4%.
Rental prices increased 2% in London on new deals and there was good growth in higher-margin
property management revenues, which increased from c 36% of tenancies to c 40%. There
was also some dilution in the revenue per transaction due to volumes from new commuter
markets outside London where rental rates are typically lower.
Exhibit 2 tracks the number of lettings, revenue and revenue per letting since H119.
Although volumes have been broadly flat, revenue per letting has increased materially
since H220, implying that total revenue in H125 was nearly £55m and at a record for
the company. We expect further growth in H2 to reflect market strength and seasonality,
which tends to see greater volumes of lettings in the second half.
| Exhibit 2: Foxtons’ Lettings activity by half year since H119 |
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| Source: Foxtons Group |
Revenue increased £2.2m in the half year and operating profit rose £1.8m, implying
a 78% drop-through rate of revenue to operating profit. This highlights the benefits
of adding additional volumes to Foxtons’ existing Lettings capacity. We expect this to remain a feature of the division in
future years.
Sales: Stamp Duty change increases volatility, but demand remains robust
Foxtons increased Sales volumes by 44% to 2,384 units. Sales revenue increased 24.6%
to £26.9m as the group benefited from volume growth in its core markets and from £2.2m
of acquired revenue. There was material volatility in Q1 and Q2 due to the change
in Stamp Duty at the end of March. As a result, exchange volume across the London
market more than doubled year-on-year in the month, but fell back by around a third
in April, and was c 10% below last year in May and June.
Partially as a result of the growth in revenue, operating losses were materially reduced,
from £3.6m in H124 to £2.1m in H125, as the benefit of increased revenue fed through.
We believe it is simply a matter of time before the Sales division hits break-even
as volumes increase via market share growth and M&A, as well as volume growth, assuming
the market improves over time.
Foxtons maintained its market share at c 5%, which is ahead of its medium-term target
of 4.5%, but average revenue per transaction was down c 14% y-o-y, due to two factors.
Firstly, the Stamp Duty change increased the proportion of lower price First Time
Buyer properties handled across the market, and secondly, Foxtons handled a higher
proportion of lower-priced sales in commuter markets. Excluding the impact of acquisitions,
volumes increased 21% while the average revenue per transaction was down 6% due to
the increase in the proportion of lower-priced properties transacted.
The chart below clearly shows that revenue per unit over the medium term has remained
at c £13k, until the most recent mix-affected period. We anticipate some bounce back
in H2. However, the dilutive effect of increasing numbers of properties transacted
in commuter towns is likely to dampen the average in all future periods, but add to
the overall volume of transactions. Excluding commuter town transactions, the revenue
per unit in London was broadly flat in the period.
| Exhibit 3: Foxtons’ Sales activity by half year since H119 |
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| Source: Foxtons Group |
Financial Services: Flat revenue and small reduction in profit
Financial Services volumes reduced 4% to 2,495 transactions, but the revenue per transaction
increased 4% to £1,816, resulting in flat revenue at £4.5m. New purchase transaction
revenue increased 22% or £0.3m, reflecting the Sales activity in H1, while there was
a 19% or £0.4m reduction in refinance revenues as fewer products expired in the period.
Operating profit reduced from £0.6m to £0.3m, reflecting an increase in the fee earner
headcount to support future growth in activity.
H2 is expected to see a reversal of emphasis, as a greater number of existing products
that were taken out five years ago in the early months of the COVID-19 pandemic are
due to expire in the period.
| Exhibit 4: Foxtons’ Financial Services activity by half year since H119 |
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| Source: Foxtons Group |
Cost savings and outlook both set to be encouraging
Foxtons continued to make strategic progress in H1, which was outlined at the capital
markets day in June (see our note covering this and our interview with the CEO Guy Gittins). In support of the progress being made, Foxtons has successfully
negotiated an early exit from its lease of the two floors of space it occupies at
its Chiswick Park headquarters, and is due to move to a smaller space in the same
business park. The cost saving is expected to be significant from the end of January
2026, with some functions moving to a lower cost space in Worcester over time.
The trading outlook is largely unchanged from previous guidance. The lettings market
is expected to experience its seasonal summer bounce and there are decent levels of
available stock and tenant demand, with rental pricing expected to broadly follow
inflation. The sales market is likely to be more subdued as consumer confidence is
weaker than expected as the decline in interest rates has not occurred at the pace
previously hoped for. It therefore follows that the activity in new purchase mortgages
is likely to follow the sales market, offset by an increase in remortgage activity
as mortgage products that were taken out in the early period of the COVID-19 pandemic
expire.
We have not made any material changes to revenue or operating profit estimates despite
the cost savings mentioned above, suggesting some potential upside to FY26 operating
profit. However, capex expectations have increased by c £2m for the fit-out of the
new headquarters and working capital is likely to be £3–4m higher than we previously
expected, hence our FY25 net debt expectation has increased from £8.4m to £13.9m,
and this flows through to FY26.
Our 134p per share valuation remains unchanged.
