RE: breakdown3 Feb 2015 14:31
Foxtons is a sell
By Gary Newman | Monday 2 February 2015
Current opinions on the direction of the UK property market over the coming year certainly wouldn’t send me rushing to invest in any estate agents. That is even more the case when you look at London, and especially high-end properties, and is why I currently see Foxtons Group (FOXT) as a sell and would expect the share price to drift during 2015.
As to whether I would be rushing to short it heavily at the current price of 190p, possibly not as it might still have the legs to get up to around that 205p level, but I certainly think it will become a target for shorters if it does get there.
If I was holding shares in Foxtons I’d be more inclined just to sell and look for opportunities in other sectors until the property market shows signs of recovery, which could be as soon as 2016 onwards if the predictions of bodies such as the Centre for Economics and Business Research (CEBR) are anything to go by.
Current predictions from CEBR are for a 0.6% drop in house prices during 2015, and with London being hit especially hard with a 3.3% drop. A number of factors are contributing to this downwards pressure, including a reduction in foreign buyers (most notably Russians), an increase in properties on the market, possible political changes as a result of the General Election in May (‘mansion taxes’ or similar), and of course ongoing concerns that interest rates, which have been very low for some time, may be raised.
This follows very good growth in 2014 where nationally prices rose by 8.8% - the biggest annual rise since 2007 – and in London they were up by a staggering 16.8%.
Given that shares in the company have traded as low as 142p during the past year, in spite of that house price growth, it is hard to see them performing that well during a period of price contraction, even a fairly short-lived one.
The latest trading update shows that Q4 2014 sales commissions were down by 25.7% compared to the same period in the previous year, and that total turnover was down by 12.1%. Full year figures were up 3.6% and 3.4% respectively, and when taken in combination with the Q4 figures, shows the direction that turnover is heading in currently.
One positive though was that lettings, which account for around half of the group revenue, saw a 7.7% increase in revenue and are now stronger than during the early part of 2014.
The market seemed to take this news, and the full year EBITDA figure of £46 million, well and the share price rose by nearly 20% over a few days – but it left me wondering if it was a convenient spike for shorts to open at a higher level!
On a positive note the company is debt-free and paid a dividend of 9.7p per share for 2014 (to be approved and it goes ex-dividend on May 1 2015).
For me though it is a sell as I see far more chance of downside than upside during the coming year.
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