Foxtons Group — Valuation offers 100% upside

Foxtons Group (LSE: FOXT)

Last close As at 10/10/2024

GBP0.63

−0.40 (−0.63%)

Market capitalisation

GBP194m

More on this equity

Research: Real Estate

Foxtons Group — Valuation offers 100% upside

Foxtons Group’s H1 results clearly highlight the success of the strategy the company embarked on at the start of last year. Although there is still work to be done, significant progress has been made and it now appears likely that the medium-term target of reaching operating profit in the range of £25–30m can be achieved. Although we have maintained our existing forecasts and valuation, we believe the risks appear to be to the upside, considering that the underlying macroeconomic data appear to be supportive; something that has been lacking for some time.

Andy Murphy

Written by

Andy Murphy

Director, Financials & Industrials

Real Estate

Foxtons Group

Valuation offers 100% upside

Interim results

Real estate

20 August 2024

Price

66p

Market cap

£202m

Net debt (£m) at 30 June 2024

11.3

Shares in issue

303.5m

Free float

100%

Code

FOXT

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.6

(3.5)

71.1

Rel (local)

(1.5)

(3.2)

48.4

52-week high/low

71p

34p

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

Q3 trading update

October 2024

Preliminary results

March 2025

Analyst

Andy Murphy

+44 (0)20 3077 5700

Foxtons Group is a research client of Edison Investment Research Limited

Foxtons Group’s H1 results clearly highlight the success of the strategy the company embarked on at the start of last year. Although there is still work to be done, significant progress has been made and it now appears likely that the medium-term target of reaching operating profit in the range of £25–30m can be achieved. Although we have maintained our existing forecasts and valuation, we believe the risks appear to be to the upside, considering that the underlying macroeconomic data appear to be supportive; something that has been lacking for some time.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/22

140.3

13.7

3.0

0.9

22.0

1.4

12/23

147.1

15.2

2.9

0.9

22.9

1.4

12/24e

157.6

19.4

3.7

1.3

17.9

2.0

12/25e

166.6

22.5

4.4

1.6

14.8

2.4

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).

Benefits of market stability and internal initiatives

H1 revenue rose 10.7% to £78.5m. Growth was registered in all three divisions, with the key driver being Sales. Adjusted operating profit increased 23.9% to £8.5m as losses were significantly reduced in Sales, reflecting the inherent operational gearing. Adjusted PBT increased 22.7% to £7.4m and adjusted, diluted EPS rose 40.8% to 1.8p. The interim dividend was increased 10% to 0.22p/share in line with the strategy and net debt came in at £11.3m versus £2.1m at H123, largely reflecting the impact of acquisitions and lease repayments.

Material progress towards medium-term targets

Foxtons continues to demonstrate progress towards its medium-term target of generating operating profit of £25–30m per year. So far it has achieved the growth and demonstrated the returns in Lettings, exceeded its market share target in Sales and made progress towards the target growth rate in Financial Services. This is being achieved partly due to the introduction of internal initiatives to retain and add headcount where required, to embrace AI-driven activities to improve the quality of leads as well as introducing targeted, themed marketing plans to raise brand awareness.

Valuation: Unchanged at 132p/share

Following the H124 results, we retain our existing FY24 and FY25 estimates and our 132p/share valuation, which is discussed in our FY23 results note. That said, we believe that the risks to forecasts appear to be to the upside considering the remarkable expansion of market share in Sales in a flat market and the prospect of improved sentiment across the housing market, as base rates have now been lowered for the first time in several years and economic growth appears to be accelerating from a low base.

H124 results a key milestone in the Foxtons journey

The benefits of market stability and successful growth initiatives were clearly seen in H124, with revenue and profits increasing by 10.7% and 23.9% respectively. Although Lettings is seen as the key driver of increased recurring revenue and therefore improved quality of income, the Sales operation performed particularly strongly, but in a flat market, testament to the success of the company’s strategy. In fact, material progress has been achieved in all three divisions, and with a growing economy and declining mortgage rates, it would appear that further success is possible. Our estimates are unchanged but include the potential for Foxtons to hit the bottom of its £25–30m operating profit target range in FY26.

H124 grew strongly and benefited from internal initiatives

In H124, Foxtons benefited from both market stability and its strategic initiatives, which are beginning to generate significant traction. Revenue increased 10.7% to £78.5m, with growth being registered in all three divisions, with the key driver being Sales. Adjusted operating profit increased 23.9% to £8.5m, as losses were significantly reduced in Sales as the operational gearing inherent in the business came to bear. Adjusted PBT increased 22.7% to £7.4m and adjusted and diluted EPS rose 40.8% to 1.8p as the tax rate reduced.

The interim dividend was increased 10% to 0.22p/share, in line with the strategy, and net debt came in at £11.3m, versus £2.1m as at H123, largely reflecting the impact of acquisitions and lease repayments. We calculate free cash flow almost doubled year-on-year, from £3.4m in H123 to £6.4m, which is a fairer reflection of the underlying cash performance in the business.

Exhibit 1: Interim results summary

£m

H119

H120

H121

H122

H123

H124

H123 vs H119

H124 vs H123

Revenue

Lettings

32.4

25.7

32.9

39.4

49.8

52.4

61.5%

5.2%

Sales

15.4

11.1

25.2

20.8

16.9

21.6

39.9%

27.6%

Financial Services

4.0

3.6

5.2

4.8

4.2

4.5

14.7%

7.5%

Total revenue

51.8

40.4

63.4

65.1

70.9

78.5

51.5%

10.7%

Adjusted operating profit

Lettings

2.0

2.0

1.5

7.3

14.1

12.9

-

-8.5%

Sales

(3.5)

(4.8)

4.4

(0.7)

(6.4)

(3.7)

-

-41.2%

Financial Services

0.6

0.5

1.1

0.8

0.2

0.6

-

197.5%

Corporate costs

-

-

(1.5)

(1.2)

(1.2)

(1.3)

-

15.3%

Total adjusted operating profit

(0.9)

(2.4)

5.4

6.2

6.8

8.5

-

23.9%

PBT (ex-exceptionals)

(2.1)

(3.5)

4.4

5.2

6.0

7.4

-

22.7%

EPS – adjusted, diluted (p)

(0.7)

(1.6)

1.1

1.1

1.3

1.8

-

40.8%

DPS (p)

-

-

0.18

0.20

0.20

0.22

-

10.0%

Net cash

14.5

40.5

24.4

11.6

(2.1)

(11.3)

-

437.0%

Source: Foxtons Group, Edison Investment Research

Lettings revenue growth and underlying retention improve

In H1, Foxtons’ Lettings revenue increased 5.2% to £52.4m (H123: £49.8m) and accounted for just under 70% of total group revenue for the period. Average revenue per transaction increased by a modest 3.7% to £5,514 as the demand and supply dynamics stabilised and there was a 1.4% increase in the overall lettings volumes to 9,495. Of the £2.6m revenue increase, £2.2m was accounted for by two additional months’ trading from Atkinson McLeod (acquired in March 2023) and an additional six months of trading from Ludlow Thompson, acquired in November 2023, and interest on client monies rose from £2.3m to £3.4m.

The headline figures hide double-digit growth in new business, as there was an offsetting temporary reduction in the volume of existing tenancies re-transacting in the period, the result of a deliberate decision to lengthen tenancy terms that were originally signed in 2022 and 2023. In the short term, this implies fewer re-transactions, but in the longer term it improves client retention rates and therefore the proportion of recurring revenues within the group, which is a key element of the group’s strategy. The average tenancy duration has improved by c 20% since 2022.

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 in H124 was over £50m 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 H2.

Exhibit 2: Foxtons Lettings activity by half year since H119

Source: Foxtons Group

Despite the 5% growth in the top line, operating profit declined 8.5% to £12.9m in H124 due to increased central cost allocations, which in turn were the result of the increased cost of growth initiatives and overall cost inflation.

Sales market share jumps in a flat market.

Sales revenue increased 28% to £21.6m as exchange volumes handled by Foxtons increased by the same amount, despite flat London exchange volumes as the internal initiative to retain fee-earning staff in the downturn began to pay off. As a consequence of this dynamic, Foxtons’ market share increased markedly, from 3.9% to 5.1%, which is ahead of its medium-term target of 4.5%. Average revenue per transaction was flat year-on-year as the average sales price and the average commission rates earned were broadly maintained, at £581k (FY23: £584k) and 2.16% (FY23: 2.17%) respectively.

The chart below clearly shows that although revenue per unit over the medium term has remained at c £13k, revenue is now c 50% higher that it was in 2019, as volumes have increased by c 25%. The outlook in the current market as measured by the agreed sales pipeline supports this growth momentum.

Exhibit 3: Foxtons Sales activity by half year since H119

Source: Foxtons Group

Partially as a result of the material growth in revenue, operating losses were nearly halved, from £6.4m in H123 to £3.7m in H124, as the benefit of increased revenue fed through, offset by an increase in the allocation of central costs.

Financial Services continues robust performance

Financial Services revenue increased by 7% to £4.5m, which is the highest H1 figure recorded in the last six years, bar the COVID-boosted period in H121. The division handled a volume increase of 8%, with the average revenue per transaction flat, as a 2% increase in the average loan size was offset by an adverse product mix as product transfers, rather than new loans, continued to grow.

In the period, £2m of the £4.5m of divisional revenue was generated by non-cyclical and recurring refinance activity, and the balance was largely made up of purchase activity.

Exhibit 4: Foxtons Financial Services activity by half year since H119

Source: Foxtons Group

Operating profit in Financial Services increased by £0.4m y-o-y versus an increase of £0.3m in revenue, as productivity gains were extracted from the business. The operating margin jumped from 5%in H123 to 13%.

Operational initiatives bear fruit

The growth discussed above and the progress towards strategic targets mentioned in the next section have been at least in part driven by a series of internal initiatives. These include:

An increase in the fee-earner headcount, which was up 5% over the previous year and is now considered to be broadly at a level consistent with further growth. Fee earner retention levels have improved as has the level of experience in the business, which has been complemented by a comprehensive training programme and a return to Foxtons’ high-performance culture.

An increase in lead generation and conversion, assisted by a new AI-driven lead-scoring platform that was developed and deployed internally. This new platform complements and builds on the 2023 lead-scoring software employed within Foxtons’ dedicated customer prospecting centre.

The launch of seasonal marketing campaigns, which included ‘Grab January by the Foxtons’ early in the new year, ‘Spring into action’, obviously in the spring, and ‘Ready, Set, Foxtons’, designed to generate leads with a sports theme given the anticipated summer of sport, such as Wimbledon and the Olympics.

Furthermore, Foxtons has invested in improved customer services and staff productivity this year, which includes a new real-time customer feedback system that allows Foxtons to better understand the requirements and challenges of its customers. Improved customer service is also a key driver of the property management activity, which in turn should drive landlord retention and therefore the quality of ongoing revenue across the group.

Strategic progress achieved towards ambitions

Foxtons has a medium-term target of delivering operating profit of £25–30m and a long-term strategy of decoupling earnings from the sales market cycles and of increasing the proportion of non-cyclical and recurring revenues. The chart below sets out Foxtons’ unchanged strategic priorities by division and the latest progress towards them in H1, which we believe is impressive.

Exhibit 5: Latest progress towards medium-term ambitions

Source: Foxtons Group

For example, in Lettings, which is the bedrock of the recurring revenue target, the company is targeting 3–5% revenue growth pa and returns on acquired expenditure of over 20%. Since H122, Foxtons has achieved 6% pa revenue growth, which has benefited from double-digit year-on-year growth in Lettings new business volumes and a doubling of the volumes of Build to Rent. It has also achieved a 25% average return on the capital invested in acquisitions, including the purchase of Ludlow Thompson, and improved the landlord retention rates within the acquired and existing portfolio by deliberately lengthening the tenancy agreements.

In Sales, Foxtons is targeting a 4.5% market share, compared to a 3.3% share in H122. As a result of numerous management initiatives, including investment in the retention of fee-earning staff, Foxtons enjoyed a 5.1% market share in H124 in a flat exchange market. To put this another way, despite a flat market in volume terms, Foxtons grew its volumes by an impressive 28%, hence the material increase in market share.

In Financial Services, the smallest division, Foxtons is targeting revenue growth of 7–10% pa and has seen volumes decline c 3% pa since H122, due largely to volatile mortgage markets. However, in H124, revenue increased 7%, in line with the bottom of the target range and, with base rates beginning to edge down, it appears more likely that the target can be achieved in the future.

Exhibit 6: Financial summary

£m

2019

2020

2021

2022

2023

2024e

2025e

2026e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

106.9

93.6

126.5

140.3

147.1

157.6

166.6

173.3

EBITDA

 

 

13.5

15.7

25.1

27.8

30.0

35.0

37.7

42.6

Normalised operating profit

 

 

0.6

3.8

12.1

15.6

17.1

22.0

24.7

29.6

Amortisation of acquired intangibles

(0.6)

(0.8)

(1.7)

(1.6)

(1.8)

(2.4)

(2.4)

(2.4)

Share-based payments

(0.7)

(1.0)

(1.5)

(0.2)

(1.0)

(2.0)

(2.0)

(2.0)

Total adjusted operating profit

(0.7)

1.9

8.9

13.9

14.3

17.6

20.4

25.2

Exceptionals

(5.7)

(1.1)

(1.4)

(0.1)

(4.5)

0.0

0.0

0.0

Reported operating profit

(6.3)

0.8

7.6

13.8

9.8

17.6

20.4

25.2

Net Interest and exceptionals

(2.5)

(2.2)

(2.0)

(1.9)

(1.9)

(2.6)

(2.2)

(1.9)

Profit Before Tax (norm)

 

 

(1.9)

1.6

10.0

13.7

15.2

19.4

22.5

27.6

Profit Before Tax (reported)

 

 

(8.8)

(1.4)

5.6

11.9

7.9

15.0

18.2

23.3

Reported tax

1.0

(1.8)

(6.9)

(2.4)

(2.4)

(3.8)

(4.5)

(5.8)

Profit After Tax (norm)

(0.9)

(0.2)

3.1

11.4

12.8

15.6

18.0

21.8

Profit After Tax (reported)

(7.8)

(3.2)

(1.3)

9.6

5.5

11.3

13.6

17.4

Discontinued operations

0.0

0.0

(4.8)

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

(0.9)

(0.2)

(1.7)

11.4

12.8

15.6

18.0

21.8

Net income (reported)

(7.8)

(3.2)

(6.2)

9.6

5.5

11.3

13.6

17.4

Basic average number of shares outstanding (m)

275

314

324

308

302

302

302

302

EPS - basic normalised (p)

 

 

(0.32)

(0.08)

(0.52)

3.69

4.23

5.17

5.95

7.21

EPS - basic reported (p)

 

 

(2.83)

(1.02)

(1.90)

3.11

1.82

3.73

4.51

5.77

EPS - Continuing, diluted, and adjusted. Company definition (p)

 

 

(1.06)

(0.16)

1.98

3.00

2.88

3.67

4.44

5.69

Dividend (p)

0.00

0.00

0.45

0.90

0.90

1.29

1.55

1.99

Revenue growth (%)

(-4.1)

(-12.5)

35.2

10.9

4.9

7.1

5.7

4.0

Normalised Operating Margin (%)

0.5

4.1

9.5

11.1

11.6

14.0

14.9

17.1

BALANCE SHEET

Fixed Assets

 

 

178.7

173.4

184.4

191.7

214.2

206.4

197.1

188.0

Intangible Assets

101.0

103.5

107.3

109.3

114.9

116.0

117.1

118.2

Goodwill

9.3

11.4

17.7

26.1

40.7

40.7

40.7

40.7

Tangible Assets

13.0

10.5

9.7

10.7

9.5

13.6

16.3

19.1

Right of use assets

51.4

44.4

43.8

42.6

42.5

29.5

16.5

3.5

Contract assets

0.6

0.4

0.9

1.7

4.7

4.7

4.7

4.7

Investments & other

3.3

3.1

5.1

1.4

1.9

1.9

1.8

1.8

Current Assets

 

 

30.2

52.6

39.3

34.5

37.1

41.8

55.3

72.5

Contract assets

1.0

1.7

3.7

5.7

14.3

14.3

14.3

14.3

Debtors

13.4

13.9

16.0

16.0

17.4

20.5

21.7

22.5

Cash & cash equivalents

15.5

37.0

19.4

12.0

5.0

6.6

19.0

35.3

Other

0.3

0.1

0.3

0.7

0.5

0.5

0.5

0.5

Current Liabilities

 

 

(27.9)

(29.2)

(31.9)

(38.7)

(57.1)

(51.4)

(52.0)

(52.4)

Creditors, tax and social security

(10.5)

(10.3)

(14.5)

(16.7)

(21.4)

(15.9)

(16.8)

(17.4)

Lease liabilities

(9.7)

(10.8)

(8.8)

(10.7)

(10.7)

(10.7)

(10.7)

(10.7)

Short term borrowings

0.0

0.0

0.0

0.0

(11.7)

(11.7)

(11.7)

(11.7)

Contract liabilities

(6.3)

(7.7)

(8.2)

(9.7)

(11.8)

(11.8)

(11.8)

(11.8)

Other

(1.4)

(0.4)

(0.3)

(1.5)

(1.6)

(1.4)

(1.1)

(0.9)

Long Term Liabilities

 

 

(65.2)

(62.4)

(68.4)

(64.9)

(68.6)

(59.4)

(49.8)

(40.3)

Lease liabilities

(46.2)

(40.7)

(39.3)

(35.8)

(36.9)

(27.7)

(18.1)

(8.6)

Contract liabilities

(1.3)

(1.1)

(1.1)

(0.3)

(0.4)

(0.4)

(0.4)

(0.4)

Other long term liabilities

(17.8)

(20.6)

(28.0)

(28.8)

(31.3)

(31.3)

(31.3)

(31.3)

Net Assets

 

 

115.8

134.5

123.5

122.7

125.6

137.5

150.6

167.7

CASH FLOW

Op Cash Flow before WC and tax

(2.6)

4.3

6.6

15.0

11.6

20.0

22.7

27.6

Depreciation - Right of use assets and goodwill

9.8

9.4

13.8

12.2

12.9

13.0

13.0

13.0

Branch asset impairment

4.3

1.7

1.1

(0.3)

3.4

0.0

0.0

0.0

Gain on disposal of PPE etc

(0.4)

(0.5)

(1.4)

(0.3)

0.2

(0.5)

(0.5)

0.5

Working capital

(2.6)

(0.6)

1.7

(1.2)

(10.8)

(8.6)

(0.3)

(0.2)

Decrease in provisions

0.8

(0.8)

0.2

1.1

(0.5)

(1.0)

(1.0)

(1.0)

Share based payment charges

0.7

1.0

1.5

0.2

1.0

2.0

2.0

2.0

Cash settlement of share incentive plan

(0.4)

0.0

0.0

(0.0)

0.0

(0.5)

(0.5)

(0.5)

Tax

0.2

0.2

(0.2)

(2.7)

(2.2)

(3.8)

(4.5)

(5.8)

Net operating cash flow

 

 

9.8

14.7

23.5

23.9

15.7

20.6

30.9

35.5

Capex

(0.3)

(0.4)

(1.7)

(2.9)

(2.1)

(1.9)

(2.0)

(2.1)

Acquisitions/disposals

(0.2)

(3.9)

(14.5)

(9.6)

(15.5)

(2.3)

(0.8)

(0.8)

Net interest

0.0

0.0

(0.0)

0.1

0.1

(0.1)

0.0

0.3

Dividends

0.0

0.0

(0.6)

(1.5)

(2.7)

(2.7)

(3.9)

(4.7)

Repayment of lease liabilities

(12.0)

(10.0)

(15.2)

(12.7)

(12.5)

(12.0)

(12.0)

(12.0)

Purchase of own shares and proceeds from issue

(0.1)

(20.8)

(5.7)

(4.9)

(1.1)

(0.3)

(0.3)

(0.3)

Other

0.3

0.3

0.3

(3.4)

0.2

0.3

0.3

0.3

Net Cash Flow

(2.4)

21.5

(13.9)

(11.1)

(17.9)

1.7

12.3

16.3

Opening net debt/(cash)

 

 

(17.9)

(15.5)

(37.0)

(23.1)

(12.0)

6.8

5.1

(7.2)

Other non-cash movements

0.0

(0.0)

0.0

0.0

(0.9)

0.0

0.0

0.0

Closing net debt/(cash) (ex-lease liabilities)

 

(15.5)

(37.0)

(23.1)

(12.0)

6.8

5.1

(7.2)

(23.5)

Source: Foxtons Group accounts, Edison Investment Research

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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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 2024 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 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.

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 2024 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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ProCredit Holding — Executing its updated strategy

ProCredit Holding (PCB) recorded strong sequential loan book growth of 3.8% in Q224 (and 6.9% in H124), a run-rate ahead of management’s FY24 guidance of 10% (excluding FX). This was achieved at a stable year-on-year net interest margin of 3.6%, translating into a 12.8% y-o-y increase in net interest income to €90.5m in Q224. The execution of the company’s updated strategy resulted in a 27.4% y-o-y increase in personnel and administrative expenses, leading to a cost-to-income ratio (CIR) of 66.3% (Q223: 59.7%). Moreover, PCB booked €5.4m in loss allowances (vs a net €1.3m release in Q223), which still represents a limited annualised cost of risk of 33bp (in line with PCB’s FY24 guidance of up to 40bp). As a result, net income declined 30.5% y-o-y in Q224, with a return on equity (RoE) of 9.5% (H124: 11.6%), compared to management’s FY24 guidance of 10–12%.

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