Last updated: August 27, 2014 8:01 pm

Foxtons shares hit despite special dividend and jump in profits

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©Charlie Bibby

Foxtons’ shares slid by more than 11 per cent on Wednesday after the London estate agency chain forecast a cooling-off in the capital’s booming housing market.

The downturn wiped out a 10 per cent growth in the share price since the start of August.

Stricter mortgage lending rules introduced earlier this year and growing expectations of a rise in interest rates are hitting demand from buyers, Foxtons’ chief executive Nic Budden said. This shift would lead to “lower rates of market growth in both property sales transactions and prices during the second half of the year”, Mr Budden forecast.

The share price slide came despite a 57 per cent year-on-year rise in pre-tax profits in the first six months of 2014.

Foxtons also announced it would redistribute some of the high volume of cash it is generating.

The group will pay out £12.8m in interim and special dividends, more than half of the £23.1m pre-tax profits it generated in the six months to 30 June. It is its second special dividend payment since it went public last autumn.

Anthony Codling, an analyst at Jefferies, said the trading update had raised questions over Foxtons’ sales performance. “Foxtons’ growth in transactions was significantly below the market,” he said.

The group’s revenues rose 16.2 per cent to £72.8m, driven primarily by larger volumes of homes being sold, which grew 20 per cent to 2,919.

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Transaction volumes across the UK rose 22 per cent in 2013-14 compared with the previous year, according to HM Revenue & Customs.

Most of the sales growth seemed to be due to the opening of new branches, Mr Codling said. “That suggests underlying like-for-like growth is clearly well below the market performance, especially when their newly opened branches charge 0 per cent commission for a certain period,” the analyst added.

Foxtons opened five branches in the first half of this year, taking its total to 49, and plans to open a further two in the coming months.

Mr Budden said he did not expect the growth in sales volumes and prices to continue.

“The policy initiatives introduced in 2014 aimed at controlling mortgage lending, together with the expectation of increases in interest rates, are now having an impact on short-term demand among buyers,” he said.

Analysts Numis and Credit Suisse cut their full-year earnings forecasts as a result of the trading update.

Credit Suisse said that Foxtons offered a “compelling structural growth story” but they cut their share price target to 372p and reduced their forecast for full-year earnings per share by 6 per cent to 15.25p.

The company is well known for its hard-nosed approach to negotiation and marketing. Revenue generated per employee rose year-on-year from £53,812 to £59,890.

The average price of homes sold by Foxtons rose from £475,000 to £545,000, reflecting its focus on what Mr Budden called “the higher volume, higher value mid-market sector”.

By contrast, lettings revenue – which makes up less than half of Foxtons’ total income – was stagnant at £31.8m, and the number of homes let saw a marginal decline to dip below 10,000.

Shares in Foxtons fell 11.5 per cent to 260.4p in London trading before recovering a little to 265.4p at market close.

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