Foxtons Estate Agents As Owner BC Partners Mulls Sale...Foxtons estate agents signs advertise residential properties as 'Sold' in the Brixton district of London, U.K., on Monday, May 13, 2013. BC Partners Ltd., owner of real estate broker Foxtons Ltd., plans to appoint bankers this month to look at options for the company, Sky News reported, citing people familiar with the matter. Photographer: Simon Dawson/Bloomberg
© Bloomberg

Contrarian investors seeking ways to wager that an eventual Brexit will be less damaging to the UK economy than the market expects must select their tools carefully. Trying to predict with any accuracy where sterling will trade is the investment equivalent of licking a finger and sticking it in the air. The direction of the FTSE 100, meanwhile, is far more tied to commodities prices than how the British economy may fare outside the European Union.

Brexit contrarians instead should be trying to home in on UK financial assets that are both pricing in the worst-case scenario and also permit for more clinical handicapping than the vicissitudes of foreign exchange.

In today’s market there are few better placed candidates than shares in UK-focused estate agents, which, unlike other sectors judged to be exposed to Brexit such as airlines and banks, have failed to recover since tumbling after last June’s referendum.

There are two prongs to this deep and sustained pessimism about the sector. The first is that the market believes that Brexit will diminish London’s appeal as a hub for international business and finance, meaning house prices will fall, transaction volumes will drop and the estate agents who cream off fees from this activity such as Foxtons, Countrywide and LSL will duly suffer.

The second is that these old-style high street agents face both new online competition as well as greater regulation of the fees they charge their rental customers. The picture is by no means pretty.

Leading UK estate agents have warned that transaction volumes, especially in the London market, are likely to remain low. City analysts have responded by slashing their forecasts, predicting that earnings per share will halve at Foxtons and fall by a third at Countrywide.

Yet this level of pessimism is pricing in a housing crunch of similar magnitude as in the 2008 financial crisis, when UK housing transactions fell by more than half. A contrarian only has to believe that Brexit will not be as severe for UK estate agents — highly cash generative and mostly debt free — as the worst financial crisis since the Great Depression to believe these forecasts may be too extreme. Any sign that they are and investors will be forced to sharply revise opinions on the sector.

miles.johnson@ft.com

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