Foxtons Group — Strong markets and strategic initiatives shine

Foxtons Group (LSE: FOXT)

Last close As at 22/05/2024

GBP0.68

−2.20 (−3.12%)

Market capitalisation

GBP208m

More on this equity

Research: Real Estate

Foxtons Group — Strong markets and strategic initiatives shine

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.

Andy Murphy

Written by

Andy Murphy

Director, Financials & Industrials

Real Estate

Foxtons Group

Strong markets and strategic initiatives shine

Q322 trading update

Real estate

3 November 2022

Price

31p

Market cap

£100m

Net cash (£m) at 30 June 2022

11.6

Shares in issue

330.1m

Free float

100%

Code

FXT

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.7)

(26.2)

(32.9)

Rel (local)

(5.2)

(22.8)

(28.8)

52-week high/low

47p

27p

Business description

Foxtons Group is London’s leading and most widely recognised estate agency. It operates from a network of 57 interconnected branches offering a range of residential-related services, which break down into three separate revenue streams: sales, lettings and mortgage broking.

Next events

FY22 prelims

March 2023

Analyst

Andy Murphy

+44 (0)20 3077 5700

Foxtons GroupFoxtons Group is a research client of Edison Investment Research Limited

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
(£m)

PBT*
(£m)

EPS**
(p)

DPS
(p)

P/E
(x)

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

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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.

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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.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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OSE Immunotherapeutics — OSE-127 Phase II study enrolment completed

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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