Following up from last Thursday’s Q3 Trading Update issued by Foxtons Group (LON:FOXT), I would rate the shares of London’s leading estate and lettings agency as a Buy.
Rothschild Called In
I last featured the company in early May this year, when it was noted that the group had called in Rothschild merger and acquisition bankers to work alongside its brokers Deutsche Numis and Singer Capital Markets, amid increasing pressure from shareholders to sell itself by the end of this year.
That move was subsequent to its largest shareholder publicly calling on the board of the estate agency group to find a purchaser.
Converium Capital, the Canadian investment company, which owns about 5.3% of the equity, together with the UK-based Milkwood Capital, that owns another 5%, had both stated that they wanted Foxtons to find a buyer for the business.
The Sunday Times later suggested that Dexters, Platinum Equity – the US owner of the Leaders Romans Group – and Emeria, a European private equity-owned property business that last year bought Chestertons, could well have been among the firms keen to buy Foxtons.
The Business
Established in 1981, Foxtons is London’s leading estate agency and largest lettings agency brand, with a portfolio of over 28,000 tenancies.
The group operates from a network of interconnected, single-brand branches and offers a range of residential property services across three business segments: Lettings, Sales and Financial Services.
The company’s strategy is to accelerate growth and deliver against its medium-term target of £25m to £30m adjusted operating profit, by focusing on non-cyclical and recurring revenues from Lettings and Financial Services refinance activities, supplemented by market share growth in Sales.
Q3 Management Comment
CEO Guy Gittins stated that:
“We have delivered our third consecutive quarter of growth, with Q3 revenues up 8% to £47.4m, and year-to-date revenue up 10% to £125.9m, as the momentum we have built across the business has been maintained, and we continue to cement our position as London’s largest lettings and sales agency brand.
Continued market share growth, enabled by a focus on improving training, negotiator tenure, culture and our data and technology capabilities, and supported by early signs of market recovery, drove Q3 Sales revenue up 36%.
This growth was supported by a resilient performance in Lettings, which continues to provide a valuable stream of recurring and non-cyclical revenues.
We enter the final quarter with optimism: our sales agreed pipeline is 23% higher than this time last year, sales volumes in our markets continue to recover, and we are well placed to continue to unlock the value within our business.
Our balance sheet and cash flow remain strong which will continue to support our growth and value creation initiatives, including both organic investments and synergistic lettings acquisitions.
We are on-track to deliver increased profitability in 2024, in line with consensus, and we continue to make progress towards our medium-term target of £25m to £30m adjusted operating profit.”
Analyst Views
Analyst Greg Poulton at Singer Capital Markets rates the group’s shares as a Buy, with a raised Price Objective of 94p (88p).
He is now estimating current year revenues of £160.6m, adjusted pe-tax profits of £17.0m, 4.2p earnings and a 1.10p dividend per share.
Over the next two years to end 2026 he sees revenues rising to £177.6m, £25.3m profits, 5.9p earnings and a 1.50p per share dividend.
Elsewhere, analyst Andy Murphy, at Edison Investment Research, has a valuation on the group’s shares of 134p.
His estimates for 2024 are £159.7m revenues, £19.6m profits, 3.7p earnings and a 1.3p per share dividend.
For 2025 he foresees £168.9m revenues, £22.9m profits, 4.5p earnings and 1.6p dividend.
My View – Still Looking For 80p A Share
I am still interested in finding out just how its brokers and Rothschilds have been faring in attempting to get FOXT a much better rating than at present.
Did they manage to placate the two anxious institutions?
Have they convinced them that Guy Gittins, who was only appointed a couple of years ago, should be given a clear field to pursue and achieve his strategy?
The shares are currently trading at around the 60p level, at which the whole group is valued at some £180m.
Even if a bidder does not emerge, I still see them at 80p within months.