Company in the news: Foxtons Group
Foxtons has done very well out of the London property market, says Phil Oakley. So, what now for the estate agents?
Is the London property boom over? Judging by Foxtons' (LSE: FOXT) downbeat trading statement last week, it may well be. Foxtons has made hay in what has been a very frothy market. But now it looks like the tide has turned.
Foxtons is selling fewer houses than it was a year ago, and lettings income isn't growing at all. This shouldn't be a surprise.
House prices in London have defied logic for some time now and cannot keep going up forever. Mortgages are harder to get and buyers seem to be baulking at paying lofty asking prices for properties.
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This is bad news for Foxtons, which has been opening up new branches to capitalise on London property mania. Fewer house sales means less commission, but with costs rising at 10% this year so far, profits look set to fall by a long way.
Foxtons, which has no debt, is unlikely to go to the wall. However, with lots of fixed costs to pay, its profits are very sensitive to changes in revenue, which is heading south.
It looks pretty safe to say that last year's profits of £51.7m represents a high-water mark for now. If so, then Foxtons' current market value of around £450m (at a 161p share price) is probably too high.
Verdict: avoid
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Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.
After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.
In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.
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