Shares in Foxtons tumbled after the London-focused estate agent warned that its 2014 earnings would fall below last year’s because of “a sharp and recent slowing of volumes in [the] London property sales market”.
In a gloomy outlook for the capital’s property market, the London-listed agent, known for its hard-nosed approach to marketing and negotiation, on Thursday pointed to “external headwinds” of “political and economic uncertainty, tighter mortgage lending markets and mismatches between the price expectations of buyers and sellers”.
This had exacerbated the rate of slowdown in sales transactions it noted in its first-half results.
Foxtons did not give any guidance on what its adjusted earnings before interest, tax, depreciation and amortisation would be, beyond saying it would be below the £49.6m it made in 2013. Analysts’ consensus forecast had been £57.3m.
Shares in the company fell 19.6 per cent, to 165p. They reached a peak of 397.45p in February after floating at 230p in September last year.
Foxtons’ adjusted earnings in the third quarter were £14.2m, down from £18m in 2013, and £39.2m for the nine months to the end of September, up from £37.3m last year.
Group turnover in the three months to the end of September was £39.9m, 2.9 per cent below the same period last year, while property sales commissions totalled £16.4m, down from £17.8m in the third quarter of 2013. Third quarter lettings revenue was £21.9m, the same as in 2013.
Anthony Codling, a property analyst at Jefferies, said “the warning shows that market conditions trump the rollout story”, adding: “Rather than being the icing on the cake, the market performance is crucial for Foxtons, particularly since it is focused on only one market.”
All but two of Foxtons’ 51 branches are in London, with the others in the Surrey commuter belt.
While the speed of the slowdown was a shock, Mr Codling added that he was most surprised by the flat lettings. “You’ve got two opposite markets; if sales aren’t going through, then your lettings market should be stronger,” he said. “So my real surprise is that lettings aren’t stronger.”
He anticipated that consensus forecasts for earnings would fall by about 15 per cent.
BC Partners, Foxtons’ pre-flotation owner, sold half its remaining 14 per cent stake in the estate agent last month.
Foxtons’ warning on the slowing market was corroborated on Thursday by the British Bankers’ Association, which said mortgage approvals in September were at their lowest level since July last year.
The BBA said its members approved 39,271 loans for house purchases, down from 41,361 in August while the amount of net new mortgage lending in September rose £881m, the slowest increase since January.
Nic Budden, Foxtons chief executive, said: “Despite the impact that market uncertainty is having on transaction volumes, we are continuing with our clear strategy, centralised business model and steady roll out programme, which is delivering higher market share.”
Due to the strong market in the first half, Foxtons’ year-to-date earnings are well ahead of those in 2013, with group turnover at £112.7m, up from £103.7m last year, and sales commissions up 16.9 per cent at £54.1m, from £46.3m.
Thursday’s warning follows one in August when Foxtons said stricter lending rules and growing expectations of a UK interest rate rise were hitting demand.
Mr Budden said the company was “well positioned to deliver further cash returns to shareholders, building on the £28.1m of ordinary and special dividends paid since our initial public offering”.
Get alerts on Foxtons Group PLC when a new story is published