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. 

Investors help off making big bets on UK equities on Friday, with the UK budget dominating the narrative amid fears of the introduction of a raft of measures that could stifle economic growth and dent confidence in UK stocks.

Despite a strong gain in US futures and mild gains in European equities, the FTSE 100 was dead flat at the time of writing after trading in a tight 20-point range for most of the session.

A strong session for NatWest following the release of Q3 helped to offset weakness in Lloyds and Smith & Nephew, resulting in no change in the index.

“The FTSE 100 is in a holding pattern at the end of the week, as the UK Budget looms and investors remain highly cautious. The index has opened lower, with little to ignite overall investor sentiment,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“However, buoyant results from NatWest, as it joined the banking results party, did provide some cheer with the stock more than 3% higher in early trade.

“As the guessing game continues about what Chancellor Rachel Reeves will include in her first Budget, it’s dented consumer confidence in the UK. A closely watched survey from GfK indicates that a despondent mood has taken hold ahead of revelation of the government’s tax and spending plans with concerns about the UK economy rising.”

Investors are concerned about a tax raid on their capital gains and savings, while businesses fear additional taxes that could curtail growth. The combination is doing the UK stock market no favours, and the market will look forward to certainty returning as the budget is delivered next week, although new measures may have damaging ramifications for UK equities.

Lloyds

Lloyds shares sank 4% after the UK Court of Appeal ruled against Lloyds and other financial institutions in motor financing appeals that could lead to billions in redress. Close Brothers was more heavily hit by the decision, with shares falling 15%.

Lloyds has already set aside £450m for potential redress, but there will be fears they are forced to make further provisions. Investors clearly have PPI litigation that cost banks billions fresh in their minds and decided to sell down holdings in banks ahead of further developments.