London property markets have hit Foxtons hard as their pre tax profits have halved to £18.8 million in 2016.
Foxtons have been hit by an “unprecedented sequence of events” and said 2017 was likely to be worse still.
In a year which has seen Brexit and also rising stamp duty on top end properties led to revenues from sales falling 31% to £55.5 million.
Foxtons Chief Exec Nic Budden said the capital’s market “was severely impacted by an unprecedented sequence of events”, adding: “We expect trading conditions to remain challenging throughout 2017. “Should current sales activity continue through the remainder of this year, it is likely that 2017 sales volumes will be below last year.”
As Zone 1 has been worst affected by the property market plunge, Foxton’s has looked to diversify their growth outside of their traditional central London stomping grounds.
The high-flying agency saw continued resilience in the lettings market (only dropped by 1% YOY), but this could be impacted in 2018 when lettings fees will be banned. Overall revenues fell 11% to £132.7 million, and the shares, which floated at 230p in 2013, eased 0.25p to 98p. Analysts had expected about 19.5 million pounds.
“We don’t see any near-term recovery in the investment case,” Peel Hunt analysts including Clyde Lewis wrote in a note to clients. “The group has taken about 6 million pounds of cost out of the business but profits remain highly sensitive to transaction volumes, where there is no sign of any near-term recovery.”
Despite the downturn, Foxtons says its branch network is about to hit a record high of 67 despite the downturn in central parts of the capital. Recently opened new branches in Wembley and Wood Green are in line with what the firm calls its “organic growth strategy that aims to continue strategic expansion of its network of branches throughout London and the Home Counties.”
DMZ notes that Foxtons is trading at a low price to earnings growth ratio, a key metric when deciding if a stock is undervalued.
The ratio sits at just 0.9 which suggests the share price could jump 50% and still offer fair value for money. However, with Sterling remaining weak and the UK’s economic performance being robust as discussed in Wednesday’s budget, it would be unsurprising for investor appetite towards London property to improve. One key point to note is that Foxtons does not have any debt at the end of 2016, they in fact had £9.5 million in cash – an impressive stat.
Competitors like Purplebricks, which offers significantly lower cost to property sellers and a comparable level of service could be considered as a better share pick between the two, but market factors play a huge factor when making such a choice. DMZ‘s data analysis have shown that in some areas the London property market is still performing well – it cruised past the 2008 crisis, properties over 20 years have skyrocketed leading us to think that London is still a very solid bet to when it comes to long term investment.