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Last close As at 25/03/2023
GBP0.39
▲ −0.60 (−1.52%)
Market capitalisation
GBP120m
Research: Real Estate
The tight London lettings market has resulted in a significant increase in rental rates to values that exceed pre-pandemic levels, which has further benefited Foxtons as it has concentrated M&A activity in this area. It has also witnessed positive trends from strategic initiatives to focus on higher-value properties in both the Lettings and Sales divisions, as well as investment in Financial Services. We have raised our FY22 estimates, but have retained FY23 and FY24 forecasts, given the economic uncertainty, and maintained our 128p/share valuation.
Foxtons Group |
Strong markets and strategic initiatives shine |
Q322 trading update |
Real estate |
3 November 2022 |
Share price performance
Business description
Next events
Analyst
Foxtons GroupFoxtons Group is a research client of Edison Investment Research Limited |
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The tight London lettings market has resulted in a significant increase in rental rates to values that exceed pre-pandemic levels, which has further benefited Foxtons as it has concentrated M&A activity in this area. It has also witnessed positive trends from strategic initiatives to focus on higher-value properties in both the Lettings and Sales divisions, as well as investment in Financial Services. We have raised our FY22 estimates, but have retained FY23 and FY24 forecasts, given the economic uncertainty, and maintained our 128p/share valuation.
Year end |
Revenue |
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 |
2.0 |
0.5 |
15.5 |
1.6 |
12/22e |
135.3 |
14.6 |
2.6 |
0.9 |
11.9 |
2.9 |
12/23e |
137.1 |
15.0 |
2.7 |
1.0 |
11.5 |
3.2 |
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 company definition.
Q3 results benefit from strategic actions
Foxtons traded well across all three business areas in Q3. Revenue in total increased by 25% to £43.8m and rose 11% to £108.9m ytd. To put this strong performance into context, revenue for the first nine months of FY22 (9M22) is £2m higher than for the whole of 2019 and just £2.6m shy of that generated in the whole of 2018. All three lines of business benefited from strategic changes. Lettings was boosted by M&A and targeting higher-value properties. Sales also benefited from targeting higher-value units and Financial Services saw the first evidence of growth following the recruitment of new mortgage advisers.
All three divisions growing strongly
In Lettings (which represented 67% of revenue in Q3), revenue increased £4.4m or 18% to £29.2m, with organic growth accounting for 12.5% of the total and M&A accounting for 5.5%. Sales (27% of revenue) was strong as expected against distorted comparators, with revenue up 44% to £11.9m, driven by a 39% increase in volumes and a 2% increase in revenue per transaction, a reflection of the move to target higher-value properties. Financial Services saw revenue increase by 37% to £2.8m as it benefited from a 27% increase in mortgage transactions and an 8% increase in average revenue per transaction.
Valuation: FY22 forecasts lifted; 128p FV retained
The pipeline and strong trading to date in FY22 has given Foxtons confidence to expect FY22 profits to be ahead of management’s previous expectations. This confidence is limited to the current year given economic uncertainty looking further out. We have edged up our FY22 revenue estimate modestly, which has a disproportionate impact on operating profit given the high drop-through rate. Foxtons is trading on an FY23e P/E of 10.8x with a yield of 3.3%, which we believe reflects at least some of the market risks currently in evidence.
Earnings quality increased
Foxtons traded well across all three business areas in Q3. Revenue in total increased by 25% to £43.8m and rose 11% to £108.9m ytd. To put this strong performance into context, revenue for 9M22 is £2m higher than for the whole of 2019 and just £2.6m shy of that generated in the whole of 2018. This strength has encouraged Foxtons to guide to better-than-expected results for FY22, but we retain our existing estimates beyond this date given the economic turmoil in the market.
Q3 results highlight strength across the business
Foxtons traded well across all three business areas in Q3. Revenue in total increased by 25% to £43.8m.
Exhibit 1: Foxtons Q3 revenue and growth rates
£m |
Q319 |
Q320 |
Q321 |
Q322 |
Q322 vs '19 |
Q322 vs '20 |
Q322 vs '21 |
Revenue |
|||||||
Lettings |
21.3 |
19.5 |
24.8 |
29.2 |
37.2% |
49.7% |
17.9% |
Sales |
8.4 |
6.9 |
8.3 |
11.9 |
42.4% |
72.5% |
44.0% |
Mortgage Broking |
2.1 |
2.2 |
2.0 |
2.8 |
32.1% |
25.1% |
37.4% |
Total revenue |
31.7 |
28.6 |
35.0 |
43.8 |
37.9% |
53.0% |
24.9% |
Source: Foxtons, Edison Investment Research
In Lettings (which represented 67% of revenue in Q3), revenue increased by £4.4m or 18% y-o-y to £29.2m, with organic growth accounting for 12.5% of the total and M&A accounting for 5.5%. The two deals executed this year, Gordon & Co and Stones Residential, both contributed for the full three months, have performed in line with expectations and will be fully integrated this quarter. The organic growth was driven by a 23% increase in revenue per transaction (mainly from higher rental prices), offset by a 9% decrease in volumes. This was driven by strong domestic demand as people continue to return to the office post COVID, growth from international tenants and corporate relocations.
Sales (27% of revenue) was strong as expected against distorted comparators, with revenue up 44% to £11.9m, driven by a 39% increase in volumes and 2% increase in revenue per transaction, a reflection of the move to target higher-value properties. At the end of the quarter, the pipeline was running 15% higher than last year, which gives some confidence going into Q4, although the outlook is less certain given the underlying political and economic backdrop.
Financial Services saw revenue increase 37% to £2.8m as it benefited from a 27% increase in mortgage transactions and an 8% increase in average revenue per transaction. It also benefited from an increase in the number of advisers following the investment in personnel and a greater emphasis on cross-selling protection products in a more normalised market which contributed to the increase the revenue per deal.
Foxtons is performing well under its current strategy, and delivery against the strategy is likely to be accelerated following the appointment of Guy Gittins as CEO from September. To put this strong performance into context, revenue for 9M22 is £2m more than for the whole of 2019 and just £2.6m shy of that generated in the whole of 2018.
Exhibit 2: Foxtons ytd revenue and growth rates
£m |
9M19 |
9M20 |
9M21 |
9M22 |
Ytd 2022 vs 2019 |
Ytd 2022 vs 2020 |
Ytd 2022 vs 2021 |
Lettings |
53.7 |
45.2 |
57.7 |
68.6 |
27.8% |
51.9% |
19.0% |
Sales |
23.8 |
18.0 |
33.5 |
32.7 |
37.5% |
82.1% |
-2.3% |
Mortgage Broking |
6.0 |
5.8 |
7.2 |
7.6 |
24.9% |
30.2% |
4.9% |
Total revenue |
83.5 |
69.0 |
98.4 |
108.9 |
30.4% |
58.0% |
10.7% |
Source: Foxtons and Edison Investment Research
Good ytd trading raises FY22 operating profit expectations
Good trading to date in FY22 and the pipeline has given Foxtons confidence to expect FY22 profits to be ahead of management’s previous expectations. This confidence is limited to the current year given the uncertainty looking further out. We have edged up our FY22 revenue estimate modestly, which has a disproportionate impact on operating profit given the high drop-through rate.
Exhibit 2: Summary of estimate changes
FY21A |
FY22e (Old) |
FY22e (New) |
Chg (%) |
FY23e (Old) |
FY23e (New) |
Chg (%) |
|
Revenue |
126.5 |
132.6 |
135.3 |
2.1% |
137.6 |
137.1 |
-0.4% |
Y-o-y growth (%) |
- |
4.8% |
7.0% |
- |
3.8% |
1.3% |
- |
Adjusted operating profit |
8.9 |
11.3 |
13.1 |
16.3% |
13.5 |
13.5 |
0.2% |
Y-o-y growth (%) |
- |
26.4% |
47.0% |
- |
19.5% |
2.9% |
- |
PBT, reported |
5.6 |
8.9 |
10.7 |
20.5% |
11.4 |
11.4 |
0.0% |
Y-o-y growth (%) |
- |
60.3% |
93.1% |
- |
27.6% |
6.0% |
- |
EPS (Company definition) |
2.0 |
2.2 |
2.6 |
18.9% |
2.7 |
2.7 |
0.4% |
Y-o-y growth (%) |
- |
11.0% |
32.0% |
- |
24.1% |
4.8% |
- |
DPS |
0.5 |
0.8 |
0.9 |
14.4% |
1.0 |
1.0 |
1.0% |
Y-o-y growth (%) |
- |
77.8% |
103.4% |
- |
18.8% |
4.8% |
- |
Net cash (pre-IFRS 16, ie ex-lease liabs) |
23.1 |
13.9 |
15.3 |
10.3% |
22.2 |
23.2 |
4.4% |
Y-o-y growth (%) |
- |
-39.8% |
-33.6% |
- |
59.7% |
51.2% |
- |
Source: Foxtons and Edison Investment Research
We retain our 128p per share valuation despite the increase in estimates, at least in part reflecting the more questionable economic situation.
Exhibit 4: Financial summary
£'m |
2019 |
2020 |
2021 |
2022e |
2023e |
2024e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||||
Revenue |
|
|
106.9 |
93.6 |
126.5 |
135.3 |
137.1 |
142.2 |
Normalised operating profit |
|
|
0.6 |
3.8 |
12.1 |
16.7 |
17.1 |
19.0 |
Amortisation of acquired intangibles |
(0.6) |
(0.8) |
(1.7) |
(1.6) |
(1.6) |
(1.6) |
||
Share-based payments |
(0.7) |
(1.0) |
(1.5) |
(2.0) |
(2.0) |
(2.0) |
||
Total adjusted operating profit |
(0.7) |
1.9 |
8.9 |
13.1 |
13.5 |
15.4 |
||
Exceptionals |
(5.7) |
(1.1) |
(1.4) |
(0.3) |
0.0 |
0.0 |
||
Reported operating profit |
(6.3) |
0.8 |
7.6 |
12.9 |
13.5 |
15.4 |
||
Net Interest |
(2.5) |
(2.2) |
(2.0) |
(2.2) |
(2.2) |
(2.1) |
||
Profit Before Tax (norm) |
|
|
(1.9) |
1.6 |
10.0 |
14.6 |
15.0 |
16.9 |
Profit Before Tax (reported) |
|
|
(8.8) |
(1.4) |
5.6 |
10.7 |
11.4 |
13.3 |
Reported tax |
1.0 |
(1.8) |
(6.9) |
(2.6) |
(2.7) |
(3.3) |
||
Discontinued operations |
0.0 |
0.0 |
(4.8) |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(0.9) |
(0.2) |
(1.7) |
11.9 |
12.3 |
13.6 |
||
Net income (reported) |
(7.8) |
(3.2) |
(6.2) |
8.1 |
8.7 |
10.0 |
||
Basic average number of shares outstanding (m) |
275 |
314 |
324 |
313 |
313 |
313 |
||
EPS - basic normalised (p) |
|
|
(0.32) |
(0.08) |
(0.52) |
3.82 |
3.93 |
4.34 |
EPS - basic reported (p) |
|
|
(2.83) |
(1.02) |
(1.90) |
2.59 |
2.78 |
3.19 |
EPS - Continuing, diluted, and adjusted. Co. definition |
|
|
(1.06) |
(0.16) |
1.98 |
2.62 |
2.74 |
3.15 |
Dividend (p) |
0.00 |
0.00 |
0.45 |
0.92 |
0.96 |
1.10 |
||
Revenue growth (%) |
(-4.1) |
(-12.5) |
35.2 |
7.0 |
1.3 |
0.0 |
||
Normalised Operating Margin |
0.5 |
4.1 |
9.5 |
12.4 |
12.5 |
13.4 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
178.7 |
173.4 |
184.4 |
184.5 |
174.9 |
166.4 |
Intangible Assets |
101.0 |
103.5 |
107.3 |
108.2 |
109.3 |
110.4 |
||
Goodwill |
9.3 |
11.4 |
17.7 |
17.7 |
17.7 |
17.7 |
||
Tangible Assets |
13.0 |
10.5 |
9.7 |
21.0 |
21.4 |
21.8 |
||
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 |
4.9 |
4.8 |
4.8 |
||
Current Assets |
|
|
30.2 |
52.6 |
39.3 |
31.1 |
36.5 |
41.2 |
Contract assets |
1.0 |
1.7 |
3.7 |
3.7 |
3.7 |
3.7 |
||
Debtors |
13.4 |
13.9 |
16.0 |
17.6 |
17.8 |
18.5 |
||
Cash & cash equivalents |
15.5 |
37.0 |
19.4 |
11.6 |
19.5 |
26.7 |
||
Other |
0.3 |
0.1 |
0.3 |
(1.7) |
(4.4) |
(7.7) |
||
Current Liabilities |
|
|
(27.9) |
(29.2) |
(31.9) |
(32.3) |
(33.1) |
(33.7) |
Creditors |
(10.5) |
(10.3) |
(14.5) |
(14.9) |
(15.8) |
(16.4) |
||
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) |
(55.6) |
(42.2) |
(28.1) |
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) |
(26.0) |
(23.3) |
(20.0) |
||
Shareholders' equity |
|
|
115.8 |
134.5 |
123.5 |
127.7 |
136.2 |
145.8 |
CASH FLOW |
||||||||
Op Cash Flow before WC and tax |
(2.6) |
4.3 |
6.6 |
14.1 |
15.1 |
17.0 |
||
Depreciation - Right of use assets |
9.8 |
9.4 |
10.6 |
12.0 |
11.0 |
10.0 |
||
Impairment of goodwill |
0.0 |
0.0 |
3.2 |
0.2 |
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) |
(0.7) |
(0.5) |
(0.5) |
||
Working capital |
(2.6) |
(0.6) |
1.7 |
(1.2) |
0.7 |
(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) |
(2.0) |
(2.7) |
(3.3) |
||
Net operating cash flow |
|
|
9.8 |
14.7 |
23.5 |
24.9 |
24.1 |
23.6 |
Capex |
(0.3) |
(0.4) |
(1.7) |
(2.3) |
(0.4) |
(0.4) |
||
Acquisitions/disposals |
(0.2) |
(3.9) |
(14.5) |
(9.5) |
(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) |
(2.9) |
(3.0) |
||
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) |
(3.0) |
(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 |
(3.4) |
0.3 |
0.3 |
||
Net Cash Flow |
(2.4) |
21.5 |
(13.9) |
(7.8) |
7.9 |
7.3 |
||
Opening net debt/(cash) |
|
|
(17.9) |
(15.5) |
(37.0) |
(23.1) |
(15.3) |
(23.2) |
Closing net debt/(cash) (ex lease liabilities |
|
(15.5) |
(37.0) |
(23.1) |
(15.3) |
(23.2) |
(30.5) |
|
Source: Foxtons Group, Edison Investment Research
|
|
Research: Healthcare
OSE Immunotherapeutics (OSE) completed patient recruitment in its Phase IIa study (NCT04605978) investigating its monoclonal antibody therapy, OSE-127/S95011, for the treatment of the autoimmune disease, primary Sjögren’s syndrome (pSS). The trial is sponsored and conducted by OSE’s partner, Servier, and will look to assess the efficacy and safety of OSE-127 in pSS patients with readouts expected in FY23. The drug has already demonstrated a promising safety and tolerability profile in a Phase I study in healthy volunteers. Existing standard-of-care regimes for pSS only treat symptoms of the condition. However, OSE-127 is being developed with the objective of becoming the first disease-modifying therapy for pSS, which may offer significant market differentiation, in our view. We continue to value OSE at €398.4m or €21.5 per share.
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