London estate agency Foxtons (FOXT) gains 6.9% to 78p as it posts a resilient update for the third quarter. Yet that still leaves the shares significantly down on the price at which the company joined the stock market four years ago.

The company was floated on the Main Market in 2013 at 230p and shareholders have endured a steady fall in the value of their investment as the London property market has slowed.

Third quarter revenue fell 6.4% year-on-year to £35.1m – £22.5m of this was provided by a resilient lettings business which saw modest growth in volumes.

With earnings coming under pressure the shares hardly look cheap, even at these depressed levels, yielding a little over 2% and trading on a price-to-earnings ratio upwards of 20 times based on consensus forecasts.

The one saving grace is a very strong balance sheet. The company is cash generative and has no debt.

RESILIENT PERFORMANCE

Chief executive Nic Budden says: ‘This was a resilient third quarter performance when set against the challenging conditions in the London property market.’

A report published on 16 October by LSL Property Services and Acadata shows London house prices are falling at their fastest pace since the immediate aftermath of the financial crisis – down 2.7% based on early data for September.

Foxtons is next due to update the market in January 2018 ahead of its full year results in February 2018.

On 12 October investment bank Berenberg initiated coverage on Foxtons with a ‘sell’ recommendation and 50p price target. The team of analysts cite fee pressure from Purplebricks (PURP:AIM), a high fixed cost base, pressure on rental income and a ban on tenant fees for their negative view.

‘We expect Foxtons’ high-quality management to overcome these issues, but earnings to be depressed while they do, with a 30% chance of a capital raise,’ they add.


Issue Date: 18 Oct 2017