Foxtons Group — Strategic progress versus targets evident

Foxtons Group (LSE: FOXT)

Last close As at 20/06/2024

GBP0.65

−1.20 (−1.82%)

Market capitalisation

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More on this equity

Research: Real Estate

Foxtons Group — Strategic progress versus targets evident

Foxtons’ interim results highlighted revenue and margin expansion as well as market share gains, evidence of success in rolling out the new strategy, which focuses growth on non-cyclical revenue streams and decouples performance from sales market cycles. If the strategy succeeds, over the medium term Foxtons expects margins to expand by c 500bp and operating profit to more than double. We retain our base case valuation of 59p/share, which implies c 50% upside, and our preferred ‘bull’ case valuation of 124p/share.

Andy Murphy

Written by

Andy Murphy

Director, Financials & Industrials

Real Estate

Foxtons Group

Strategic progress versus targets evident

Interims results

Real estate

1 August 2023

Price

40p

Market cap

£132m

Net debt (£m) at 30 June 2023

2.1

Shares in issue

330.1

Free float

100%

Code

FOXT

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

5.6

2.6

(9.5)

Rel (local)

3.0

4.7

(11.5)

52-week high/low

43.7p

27.4p

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

Q323 trading update

20 October 2023

Preliminary results

March 2024

Analyst

Andy Murphy

+44 (0)20 3077 5700

Foxtons Group is a research client of Edison Investment Research Limited

Foxtons’ interim results highlighted revenue and margin expansion as well as market share gains, evidence of success in rolling out the new strategy, which focuses growth on non-cyclical revenue streams and decouples performance from sales market cycles. If the strategy succeeds, over the medium term Foxtons expects margins to expand by c 500bp and operating profit to more than double. We retain our base case valuation of 59p/share, which implies c 50% upside, and our preferred ‘bull’ case valuation of 124p/share.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/21

126.5

10.0

2.0

0.5

19.2

1.2

12/22

140.3

13.7

3.0

0.9

12.7

2.4

12/23e

137.8

13.5

2.4

0.8

16.1

2.2

12/24e

146.5

17.8

3.3

1.2

11.4

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).

H123 results demonstrate growth in tough markets

Despite market headwinds Foxtons reported a 9% increase in total revenue driven entirely by the Lettings division and a total adjusted operating profit rise of 10.8%, implying that operating margins expanded 10bp to 9.6%, well below the 15% medium-term target. PBT (ex exceptionals) increased 15.9% to £6.0m and EPS (basic, diluted and adjusted) rose by a similar amount to 1.3p, from which Foxtons declared a flat 0.2p/share dividend. Foxtons ended the period with net debt of £2.1m after paying out £6.3m for acquisitions, a working capital outflow of £9m and £3.2m in shareholder returns. Working capital outflows are expected to normalise in FY24 as the landlord billing decision annualises.

Strategic progress evident

When Guy Gittins arrived at Foxtons in March 2022, he embarked on a meticulous review of the operations of the business. He identified four key areas of focus and significant progress has been made against all areas. In March 2023, Foxtons set out its medium-term strategic ambitions, which are expected to result in operating profit of £25–30m and an operating profit margin of at least 15%. At the interims, Foxtons was able to demonstrate tangible progress on a number of fronts.

Valuation: Unchanged ‘bull’ case at 124p

Our underlying revenue and profit estimates are unchanged post the interims, except for the change to landlord billing terms, which implies a short-term cash outflow. Our ‘base’ case valuation remains 59p, and our preferred ‘bull’ case valuation, which attempts to reflect market share gains across all three divisions in line with the revised strategy, remains 124p. 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, its financial strength and the opportunities that exist.

Demonstrable progress in tough markets

Despite weaker markets following a number of well-publicised external pressures, Foxtons was able to demonstrate 9% revenue growth in H123 and double-digit growth in both operating profit and PBT. Furthermore, and probably more importantly, Foxtons has begun to see the early benefits of Guy Gittins’s strategy, which focuses growth on non-cyclical revenue streams and decouples performance from sales market cycles, and progress towards its medium-term profit and margin targets. Our forecasts are largely maintained, bar a change in landlord billing terms, which is expected to stabilise in FY24. We maintain our existing 59p base case valuation and our 124p ‘bull’ case valuation.

H1 revenue and profit up in tough markets

Despite market headwinds that have included sharply higher interest rates, Foxtons reported decent revenue and profit growth in H1. Total revenue increased 9% driven entirely by the Lettings division and total adjusted operating profit rose 10.8%, implying that operating margins expanded 10bp to 9.6%, still some way shy of the 15% medium-term target. PBT (ex exceptionals) increased 15.9% to £6.0m and EPS (basic, diluted and adjusted) rose by a similar figure to 1.3p from which Foxton declared a flat 0.2p/share dividend.

Foxtons ended the period with net debt of £2.1m after paying out £6.3m for acquisitions, taking the decision to introduce shorter landlord billing periods, to improve competitiveness and portfolio retention, which resulted in a working capital outflow of £9m, and paying away £3.2m in shareholder returns, a combination of dividends and share buybacks. Working capital outflows are expected to normalise in FY24 as the landlord billing decision annualises. The outflow is unlikely to reverse in the short term.

Exhibit 1: Interim results summary

£m

H119

H120

H121

H122

H123

H123 vs H119

H123 vs H122

Revenue

Lettings

32.4

25.7

32.9

39.4

49.8

53.5%

26.2%

Sales

15.4

11.1

25.2

20.8

16.9

9.6%

-18.7%

Mortgage Broking

4.0

3.6

5.2

4.8

4.2

6.7%

-11.8%

Total revenue

51.8

40.4

63.4

65.1

70.9

36.9%

9.0%

Adjusted operating profit

Lettings

2.0

2.0

1.5

7.3

14.1

-

94.8%

Sales

-3.5

-4.8

4.4

-0.7

-6.4

-

848.4%

Mortgage Broking

0.6

0.5

1.1

0.8

0.2

-

-75.7%

Corporate costs

-

-

-1.5

-1.2

-1.2

-

-7.4%

Total adjusted operating profit

-0.9

-2.4

5.4

6.2

6.8

-

10.8%

PBT (ex exceptionals)

-2.1

-3.5

4.4

5.2

6.0

-

15.9%

EPS - Basic, diluted and adjusted, p

-0.7

-1.6

1.1

1.1

1.3

-

14.5%

DPS, p

-

-

0.18

0.20

0.20

-

0.0%

Net cash/(debt)

14.5

40.5

24.4

11.6

(2.1)

-

-52.3%

Source: Foxtons Group, Edison Investment Research

Lettings revenue hits record levels

Foxtons’ Lettings revenue increased 26% to £49.8m (FY22: £39.4m) and accounted for just over 70% of total group revenue for the period. Average revenue per transaction increased 23% to £5,316 and there was a 3% increase in the overall lettings volumes to 9,361. Of the £10.4m revenue increase, organic growth accounted for £5.6m, acquisitions for £2.7m and interest earned on client monies contributed £2.0m.

The £5.6m/14% of organic growth was driven by a combination of factors including:

a drive to secure longer tenancy terms, which implies that a greater proportion of revenue is recognised at the start of a new tenancy agreement,

a focus on cross selling higher-value property management services, and

a c 12% increase in underlying average rents as demand continues to outstrip supply.

The £2.7m/7% revenue increase from acquisitions reflects the two deals completed in May 2022, and the March 2023 acquisition of Atkinson McLeod, whose lettings portfolio was fully integrated into the Foxtons operating platform in June. There was a £0.1m charge relating to the closure of the acquired branches of Atkinson McLeod, which was treated as an adjusted item in the period.

Exhibit 2 below 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 for the period was close to £50m, 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 H2.

Exhibit 2: Foxtons letting activity by half year since H119

Source: Foxtons Group

Sales activity more subdued, but Q3 to show acceleration

Foxtons’ sales revenue decreased 19% to £16.9m reflecting a 15% decline in sales volumes to 1,293 transactions, which was itself driven by a weaker under-offer pipeline at the start of the year following the market hiatus triggered by the UK Government’s September 2022 mini-budget. Average revenue per transaction slipped 4% to £13,084 as the average price of properties sold declined 2%. Commission rates remained robust at 2.2%.

In H1, Foxtons made significant progress rebuilding the under-offer pipeline by adding c 30 people (c 14%) to the headcount. This has led to a material increase in market share, from c 3.3% to 3.8% versus a medium-term target share of 4.5%. Exhibit 3 below describes how sales volumes have fluctuated since 2019 as the sector has had to weather significant disruptions. However, revenue per transaction has remained relatively stable. Management is confident that Q3 will see sales exchanges accelerate versus the H1 average.

Exhibit 3: Foxtons sales activity by half year since H119

Source: Foxtons Group

Financial Services activity under pressure.

Financial Services revenue declined 12% to £4.2m despite a 3% increase in volumes to 2,411 transactions. The volume growth was more than offset by a 15% decline in average revenue per transaction. This lower revenue/transaction was driven by a combination of lower loan sizes, reduced new purchase volumes and an increase in lower-value product transfers within the refinance business.

Exhibit 4: Foxtons financial services activity by half year since H119

Source: Foxtons Group


Operational update

When Guy Gittins arrived at Foxtons in March 2022, he embarked on a meticulous review of the operations of the business. He identified four key areas of focus and significant progress has been made against all areas:

Data accessibility and usage: Foxtons has the largest London centric data set for sales and lettings, but until recently, it was underutilising this asset. The dataset architecture has been overhauled with Foxtons moving to becoming a data-led operation. A new key performance indicator reporting suite has been introduced, which has led to the development of a high-performance culture and the introduction of new algorithms has enhanced lead identification and conversion.

Estate agency processes and culture: Foxtons believes that over the years the business has lost some of its estate agency culture and it is now investing once again in the workforce. To this end, the Learning and Development teams delivered over 1,100 hours of training, a 10-fold increase in H1. This resulted in an acceleration in the productivity of new recruits, and crucially an 8% increase in Lettings market share versus H122, and a 43% increase in Sales instruction market share. It also led to a 21% increase in cross-selling of higher-value Lettings property management services and an increase in cross-selling of Financial Services products. An overhaul of internal processes has led to a 40% reduction in the time taken to complete a lettings transaction and a 20% reduction versus the industry average to complete a sales transaction. A new digital end-to-end rental solution is being developed, which is likely to be unveiled later this year.

Exhibit 5: Operational upgrades driving outperformance

Source: Foxtons

Headcount capacity and experience: the review of the business highlighted Foxtons’ under-resourcing of fee earners, which limited the company’s ability to make the most of market conditions. Foxtons has added 18%/c 40 fee earners to the Lettings operations and 14%/30 fee earners to the Sales operations. It also added 21% to the Financial Services headcount. There is usually a 12-month lag between hiring and full benefits. With the training already in position, the additional resources are delivering record levels of Sales viewings and increased volumes of refinancing in Financial Services. Attrition rates were unacceptably high prior to the review. In H1, staff retention rates increased 16%.

Brand visibility and customer proposition: in order to raise brand awareness, Foxtons has recruited a new marketing director to reinvigorate the brand. The director will be charged with overhauling the company’s approach to marketing to increase market share. Already the iconic Foxtons branded Minis have been reintroduced.

Strategic ambitions update

In March, Foxtons set out its medium-term strategic ambitions, to focus growth on non-cyclical and recurring revenue streams and to decouple performance from sales market cycles. They are summarised on the left-hand side of Exhibit 6. Collectively, Foxtons is targeting operating profit of £25–30m and an operating profit margin of at least 15%. In H123, Foxtons made progress on a number of fronts:

1.

It generated 14% organic revenue growth versus a target CAGR of 3–5%. This was largely driven by rental rate increases and even if rental rate growth slows, we believe it is unlikely to decline in the current undersupplied market.

2.

Foxtons completed the acquisition of Atkinson MacLeod, which was successfully integrated into the business. Previous acquisitions are delivering returns in excess of 20% as hoped.

3.

In sales, Foxtons increased its exchange market share from 3.3% to 3.8%, versus a medium-term target of 4.5%. This 15% increase should be viewed with optimism as Foxtons grew its market share of new sales agreed by 33%.

4.

In Financial Services, although total growth declined versus a 7–10% target growth rate, Foxtons grew refinance volumes by 29% and increased ancillary product cross-selling growth.

Exhibit 6: H1 progress towards medium term ambitions

Source: Foxtons

Working capital outflows and revised estimates

Our FY23 and FY24 forecasts remain largely unchanged post the interims, save for the introduction of shorter landlord billings periods to improve competitiveness, which has resulted in a cash outflow and will normalise in FY24.

Exhibit 7: Revised estimates

£m

FY22

FY23e (old)

FY23e (new)

Chg (%)

FY24e (old)

FY24e (new)

Chg (%)

Revenue

140.3

137.8

137.8

0.0%

146.5

146.5

0.0%

Y-o-y growth (%)

10.9%

-

-1.8%

-

-

6.3%

-

Adjusted operating profit

13.9

11.9

11.9

-0.3%

16.1

16.1

0.2%

Y-o-y growth (%)

55.6%

-

-14.7%

-

-

35.9%

-

Reported PBT

11.9

9.7

9.7

-0.5%

13.9

13.9

0.0%

Y-o-y growth (%)

115.1%

-

-19.2%

-

-

44.0%

-

EPS (company definition) (p)

3.0

2.4

2.4

-1.5%

3.3

3.3

1.1%

Y-o-y growth (%)

51.5%

-

-21.2%

-

-

41.2%

-

DPS (p)

0.9

0.8

0.8

3.4%

1.2

1.2

-2.7%

Y-o-y growth (%)

100.0%

-

-8.1%

-

-

41.2%

-

Net cash/(debt) (pre-IFRS 16, ie ex-lease liabs)

12.0

8.1

(1.6)

-119.6%

15.8

5.5

-65.4%

Y-o-y growth (%)

-47.9%

-

-113.2%

-

-

-443.4%

-

Source: Foxtons accounts, Edison Investment Research

Exhibit 8: 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

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

(2.5)

(2.2)

(2.0)

(1.9)

(2.2)

(2.2)

(2.2)

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

14.3

16.2

Net income (reported)

(7.8)

(3.2)

(6.2)

9.6

7.4

10.4

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

3.63

4.65

5.26

EPS - basic reported (p)

 

 

(2.83)

(1.02)

(1.90)

3.11

2.40

3.39

3.99

EPS - Continuing, diluted, & adj. Company definition

 

 

(1.06)

(0.16)

1.98

3.00

2.36

3.34

3.93

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

50.8

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

27.6

29.3

31.0

Cash & cash equivalents

15.5

37.0

19.4

12.0

(1.6)

5.5

13.3

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)

(13.1)

(0.8)

(0.8)

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

9.3

23.8

25.6

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)

Dividends and net interest

0.0

0.0

(0.6)

(1.4)

(2.8)

(2.5)

(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)

(13.6)

7.0

7.9

Opening net debt/(cash)

 

 

(17.9)

(15.5)

(37.0)

(23.1)

(12.0)

1.6

(5.5)

Closing net debt/(cash), ex lease liabilities

 

(15.5)

(37.0)

(23.1)

(12.0)

1.6

(5.5)

(13.3)

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Foxtons and prepared and issued by Edison, in consideration of a fee payable by Foxtons. 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 2023 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 and prepared and issued by Edison, in consideration of a fee payable by Foxtons. 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 2023 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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VinaCapital Vietnam Opportunity Fund — A specialist investor in the frontier market

VinaCapital Vietnam Opportunity Fund’s (VOF’s) sterling net asset value (NAV) per share decreased by 8.8% over the year ending June 2023 in total return (TR) terms, outperforming the Vietnam VN Index and its direct peers in a tough environment. The Vietnamese economy recently experienced headwinds from a liquidity crunch in the real estate industry, which represents roughly a fifth of Vietnam’s equity market capitalisation and a fourth of VOF’s NAV, as well as from slowing exports. That said, the downside protections embedded in many of VOF’s investments provide the fund with a certain cushion against these real estate sector challenges. VOF’s shares trade at a 14% discount to NAV (broadly in line with the long-term average) and offer a 2.6% dividend yield.

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